Chinese Car Manufacturing

The Chinese Car Industry 1

Is there something we can call «the chinese car industry model» ? • Less than 10 years ago, China's annual car production did not match the output of a single large auto company in a developed country. • China’s monthly vehicle sales surpassed those in the United States for the ﬁrst time in January 2009, moving this country closer to becoming the world’s biggest auto market. www.marketing-automotive.org 2

Is there something we can call «the chinese car industry model» ? • The Chinese government will spend 5 billion yuan (about $730 million) on subsidies to farmers to replace high- emission vehicles, three-wheelers or outdated trucks, • and another 10 billion yuan ($1.5 billion) to automakers to upgrade their technology and develop alternative energy vehicles. • Yet China is home to almost as many automakers as the United States, Japan and Europe combined. www.marketing-automotive.org 3

Is there something we can call «the chinese car industry model» ? In this short survey we will try to ﬁnd out the key differences between the way cars are manufactured in China compared to other key countries. www.marketing-automotive.org 4

Sourcing strategies • Compared to the Japanese automakers sourcing usually from two or three suppliers for each category of parts (multi-sourcing), the Chinese manufacturers buy a single part from two suppliers (double sourcing). • If, at the launch of a new car model, the Chinese manufacturer is not able to select two suppliers, they will source from a second supplier as soon as the new model enters in mass production. www.marketing-automotive.org 5

Sourcing strategies • In Japan, the supply relationship will last as long as the production of the model continues (usually for 4 years). • In China, the relation between assembler and supplier last for one year. • A new bidding will be organised year by year (short term relation). www.marketing-automotive.org 6

Sourcing strategies ‣ In some cases for cars which have been produced since several years, Euro-Sino assemblers use double sourcing qnd for new models single sourcing www.marketing-automotive.org 7

Development costs • In Japan, the cost of developing a new component is born by the assembler. The supplier recovers the cost on installments. This is done in 24 months by adding the development costs to the price of the component. • In case, the sales of the car fall short of the initial plan, the assembler compensate for the remaining development cost (risk sharing system). www.marketing-automotive.org 8

Development costs • In China, the supplier will recover the development cost by adding it to the price of the component. • But the assembler will not take into consideration the cost in case it stops purchasing one-sidedly (High risk for the supplier). • In case the Chinese assembler buys from a foreign supplier, it may take care of the development costs by buying the tools or by guaranteeing a minimum amount of parts. www.marketing-automotive.org 9

Development costs • European assemblers usually pay for the development costs (including the cost of making dies) right after the supplier has completed the parts development. • Some Euro-Sino joint ventures adopt this way of proceeding. www.marketing-automotive.org 10

Development costs • Euro-Sino joint venture strategy stands in the middle of the two extremes. • Sometimes they buy from more than two suppliers. • They classify the suppliers in three groups : A, B and C. ‣ they buy 60 to 70 % from A, ‣ 30 to 40 percent from B ‣ and keep C as reserve in case the car model is a big sales success. www.marketing-automotive.org 11

Why these differences ? • The Japanese model : • Early involvement of the suppliers during the development phase of a new car forces the suppliers to invest in making dies and specialized equipments and therefore a lot of man power and development costs before having a return on investment. • Without a clear guarantee from the assembler, very few suppliers would accept to enter in such deals. • Japanese-style sourcing give to car pricers the advantage of a great commitment from the suppliers to the development of new cars (they think long-term). www.marketing-automotive.org 12

Why these differences ? • The Chinese model : • Chinese car producers develop new cars by using existing components (with some modifications, if necessary) • Therefore supplier’s initial investment for developing new components may not be very expensive. When an assembler stops buying a specific part, there are great chances that the suppliers can find other assemblers who will buy the same components. • In this case, the risks of new development costs, are relatively low. www.marketing-automotive.org 13

Why these differences ? • The Chinese model (continued) : • In the case of light wagons, small trucks and motorcycles many assemblers produce very similar vehicles using same parts. • The Chine-style sourcing forces the suppliers to compete ﬁercely and reduces components buying prices. • The disadvantage is that it is difﬁcult to expect suppliers to make big investments in R&D of new parts. • As a result, assemblers will buy common parts and their cars will also be «common». www.marketing-automotive.org 14

The future • The Chinese procurement strategy is ﬁne in the ﬁrst stages of the development of the car industry in a developing country. • But this gives still large possibilities for Western and Japanese car manufacturers to sell great quantities of luxury and expensive cars in China. • This as a cost for the Chinese balance of payments and also for the future development of the market. www.marketing-automotive.org 15

Car production in China (Local producers and JV’s) Years Number of cars produced Change versus previous year 2000 2,069,000 2001 2,334,000 + 12 % 2002 3,286,000 + 41 % 2003 4,443,000 + 35 % 2004 5,224,000 + 17,5 % 2005 5,708,000 + 9,3 % 2006 7,188,000 + 26 % 2007 8,880,000 + 25 % 2008 9,345,000 +5% 2009 www.marketing-automotive.org 16

Top world car producers in 2008 (including light commercial vehicles) Country Nbr of cars produced (in 000 units) 1. Japan 11,564 2. P.R. China 9,345 3. USA 8,075 4. Germany 6,040 5. South Korea 3,806 6. Brazil 3,220 7. France 2,568 8. Spain 2,541 9. India 2,314 10. Canada 2,077 World total 70,526 www.marketing-automotive.org 17

Contact www.marketing-automotive.org Bernhard Adriaensens International Consultant in Automotive Marketing and Management Academic Director Executive Programme for the Automotive industry (www.solvay.edu/auto) 18

http://www.marketing-automotive.org	141
http://www.4tempsdumanagement.com	97
http://www.worldautoforum.com	13
http://www.slideshare.net	12
http://worldautoforum.com	4
http://localhost:8080	2
http://translate.googleusercontent.com	1
http://localhost	1
http://webcache.googleusercontent.com	1

Chinese Car Manufacturing

by Bernhard Adriaensens on Sep 27, 2009

Accessibility

Categories

Tags

Upload Details

Usage Rights

9 Embeds 272

Statistics

Chinese Car Manufacturing — Presentation Transcript