Chinese suppliers shift focus to services as market growth slows

  • 29-Oct-2014 02:46 EDT
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Changan and other Chinese vehicle suppliers are adding more services to maintain growth.

Chinese vehicle makers are altering their market strategies to cope with slower growth and increased competition. Many are focusing on services, often partnering with others to make this transition more swiftly.

China’s vehicle sales growth is declining, forcing manufacturers to alter their tactics. Speakers at the recent Global Automotive Forum in Wuhan, China, outlined techniques for maintaining higher growth rates.

“China has been the largest market since 2009, and it’s one of the most competitive markets—if not the most competitive,” said Matt Tsien, President of General Motors China. “We expect the total market here to grow at around 10% this year, with roughly similar expectations for next year. That’s below last year, but it’s still pretty significant—10% equals 2 million vehicles.”

That growth rate is below the 13% growth of recent years. Vehicle makers that had ramped up to meet that growth rate are now revising business plans to improve margins in a tighter market.

“Overcapacity yields increased competitiveness,” said Fang Hongwei, Chairman of Shaanxi Automobile Holding. “Domestic companies are in weak condition. In the past, we paid more attention to manufacturing and internal processes. Now we have shifted our focus to the life cycle of the products. Our business model has changed. We need to provide specialized services and create new demand. With service-oriented manufacturing, we pay attention to the product life cycle so we can discover service opportunities.”

Internationally and in China, Chinese vendors must increasingly compete with global automakers. Most speakers at the October conference feel there’s still a gap between Chinese and international companies.

“Chinese brands have a long way to go to catch up to foreign competitors,” said Zhang Baolin, President of Chongquin Changan Automobile Co. “To do so, we need to collaborate with our counterparts. Technical innovation will be a driving force for our transformation.”

A number of foreign companies have forged partnerships with Chinese companies. But creating an efficient joint venture between dissimilar cultures is not a simple task.

“Joint ventures between companies from different countries are very challenging,” said Michael Lembke, General Manager at Dongfeng Dana Axle Co. “The main reason they fail is because of culture, not technology or investment levels. It’s extremely important for companies to be clear about how they behave with one another.”

Chinese culture is also undergoing a transformation that will have a major impact on the automotive industry. Fan Gang, Chairman of the China Reform Foundation, said the government is attempting to increase individual consumption, which is among the lowest of the major countries and less than half that of the U.S.

To do that, China must lower the nation’s savings rate, which is about 50%, he added. He also noted that many cities are restricting auto ownership and access to city centers. That’s being done to deal with congestion in megacities as well as to curb air pollution—both major issues facing China’s automakers.

“In many cities, restrictions on cars and license plates are severe; many people can’t buy a car,” Fan said. “The central government has realized the value of the auto industry, so I don’t think they will enact further restrictions. But individual cities may. If we deal with environmental issues, I’m confident the Chinese auto industry can continue to see a high growth rate.”


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