After emerging as the world’s largest automotive market, China is now driving towards a new phase that could change the landscape forever.
09 Jun 2015 | 5474 Views | By Sumantra B Barooah
After emerging as the world’s largest automotive market, China is now driving towards a new phase that could change the landscape forever.
In the next few years, China, the world’s largest automotive industry, is set to see some major changes. A key change among them will be consolidation in ...
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After emerging as the world’s largest automotive market, China is now driving towards a new phase that could change the landscape forever.
In the next few years, China, the world’s largest automotive industry, is set to see some major changes. A key change among them will be consolidation in the industry.
“By 2020, at least more than 20 percent of Chinese auto makers will be gone,” says Xu Heyi, chairman of the BAIC Group, one of the top automobile makers in China. There are over 100 automobile manufacturers in China.
Senior industry executives shared candidly about the change China is going to witness soon, at the ongoing annual Global Automotive Forum. China is currently entering a new phase of industrialisation called Industry 4.0. The previous phase of evolution was from 1970 to 2014.
“Industry 4.0 will have a profound impact in the competition in the market,” says Zhao Ying, Professor of Industrial Economics, Chinese Academy of Social Sciences. “The powerful will become more powerful and the weaker ones will become even weaker,” he adds.
Sensing this, some OEMs are taking necessary measures to be among the more powerful lot. Changan Auto is one such company. One of China's top 5 automakers, Changan Auto is reorienting its business approach to grow in a market which is no longer witnessing high growth rates, and is unlikely to see them again. Companies are working out new strategies to be competitive in the 'new normal' business scenario. Changan is transforming manufacturing into smart manufacturing, according to Hu Zhaohui, assistant to the vice-president, Changan Auto. “We will transform from a product centered model to a product + service model,” she says. Changan’s annual R&D spend is at least 5 percent of its total revenue.
Chinese OEMs are also facing the challenge of growing independent car brands. Many Chinese carmakers have one or multiple joint ventures with global OEMs. The models from the JVs more often fare better than the models from the Chinese partner. Pricing the independent brand cheaper to succeed adds pressure on sustainability. There are around 20 indigenous car brands in China. Many OEMs in China are state owned, which has helped at least to some extent. But even that may not guarantee business security.
“Consolidation is inevitable. The government is likely to reduce its participation in some companies in the coming years,” says Wayne Xing, CEO, CBU Analytics, China. According to another expert on the Chinese automotive market, around 80 percent of the industry volumes comes from around 10 OEMs. In such a scenario, the smaller players will have to find out ways to sustain before it is too late. There is also some speculation that there could be merger of some large groups too.
It’s not only business consolidation that is the change Chinese automotive industry is going to see. The automotive industry is set to become a 'sunrise industry' again in China with the growth of electric and hybrid vehicles. To be in tune with a landscape that is changing for good, Heyi and others like him, are preparing to take the change in his stride. And that change includes the birth of a new industry of ‘new energy’ vehicles. “This generation of automakers will witness a historic change,” he says. What Heyi and others shared at the Global Automotive Forum 2015 is in line with the conference’s theme – ‘Mega Change: Reshaping an Industry.
Above: Changan Auto's CS 75 SUV which was voted as the '2014 Smart Car' at the 2015 Shanghai Auto Show.
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