Introduction to Gao Feng Advisory Company and its Automotive Practice

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A brief introduction to Gao Feng Advisory Company and our thoughts on China's Automotive Industry

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Introduction to Gao Feng Advisory Company and its Automotive Practice

  1. 1. Introduction to Gao Feng Advisory Company Our capabilities and perspectives on China’s Automotive Industry August, 2014
  2. 2. About Gao Feng Our Expertise in Automotive Our Perspectives on China’s Automotive Industry
  3. 3. 3 Gao Feng’s heritage and our deep roots in China §  Our name Gao Feng 高風 is taken from the Song Dynasty Chinese proverb Gao Feng Liang Jie 高風亮節 §  Gao Feng denotes noble character while Liang Jie refers to a sharp sense of integrity §  We believe this principle lies at the core of management consulting – a truly trustworthy partner who will help clients tackle their toughest issues
  4. 4. 4 GAO FENG INTRODUCTION Gao Feng Advisory Company •  Officially launched on April 1st, 2014, Gao Feng is a pre-eminent strategy and management consulting firm with roots in China and global vision, capabilities, resources and network •  Gao Feng’s operating model is robust. In addition to its core in Consulting, it has also built a Training Academy, a Corporate Finance practice, and an Operations Implementation practice. These practices reinforce each other so that it can provide a wide range of professional support to clients •  Specialized in helping clients to address their most difficult and strategic issues, e.g., game- changing strategy, alignment of global operating models with local China conditions, addressing transformational needs and challenges, bridging gaps across different cultures for effectiveness, and assisting Chinese companies to become international •  Examples of high-impact work led by our team of experienced advisors: -  China strategic planning for a major global automotive parts supplier -  Commercial vehicle entry strategy for a leading commercial vehicle maker in China -  Organization and process design for leading luxury auto OEM -  Due diligence on Chinese business operations for a leading Japanese vehicle manufacturer
  5. 5. 5 Gao Feng’s operating model is robust Gao Feng’s Operating Model Training Academy Consulting Corporate Finance §  Provides management and strategy training to corporations with focus on medium- sized, fast-growing Chinese companies §  Provides coaching to senior executives §  Provides premium strategy and management consulting services assisting clients to address their most challenging issues in strategy, organizations and operations §  As financial advisors, assist clients in mergers and acquisitions including candidates identification and screening, due diligence, valuation, deal advisory, and integration planning §  Offers hands-on implementation support to client’s strategies, organizations and operations §  Led by a team of experienced senior professionals who can also take on interim management roles Operation / Implementation
  6. 6. Our approach to projects in Greater China blends local expertise with the global capabilities of the firm 6 § Beijing Shanghai§  Hong Kong §  The core team is further augmented by a network of part-time professionals across China – mostly academics, researchers and other professionals Gao Feng Advisory Company consultants are based in its Beijing, Hong Kong and Shanghai offices, working as one team to service its clients in Greater China The local team is supplemented by global team members from our partner firms who help build capabilities and manage/lead projects “on the ground” Gao Feng draws on a global pool of experts for different industries and functions Our consultants are primarily locals returning to China with overseas education Some also have work experience with other MNCs prior to joining Gao Feng All professionals offer a broad range of experience and business contacts
  7. 7. 7 Typical client agenda on which we assist §  Understanding the China context -  Critical in formulating company’s strategy in China -  Evolving, often discontinuous, but also with recognizable patterns §  For multinationals (MNCs), defining China’s role in their global strategies and devising appropriate approaches -  Game changing, disruptive strategies -  Capabilities, organization, key processes and mindset, as well as alignment with HQ -  Cross-cultural alignment with Chinese partners or staff -  Adaptation of global operating models to suit China-specific needs -  China for China or China for the world? §  For Chinese companies, fulfilling the next era of needs and aspirations -  Embedding of governance, capabilities, processes and organizational foundation -  For SOEs, reform and transformation -  For privately-owned companies, growth and new identity/positioning -  For both, going overseas, globalization, cross-border M&As §  For the public sector, seeking new definition of the government's role -  (Re-)positioning and strategies for localities or regions -  Defining new collaborative partnerships with the private sector
  8. 8. Industry Coverage Functional Topics §  Business process (re-)engineering §  Commercial due diligence §  Digital Strategy §  Information services §  Innovation §  Market assessment §  Market entry and growth strategy §  M&As/ JVs/ partnerships §  Operational improvement §  Organizational development and performance improvement §  Sourcing §  Transformation §  Aviation §  Automotive §  Consumer goods and retail §  Energy and Chemicals §  Financial services §  Healthcare and pharmaceuticals §  Industrial goods §  Life Sciences §  Logistics §  Media and entertainment §  Telecommunications §  Technology/Electronics §  Transportation Focus of Gao Feng’s work in Greater China 8
  9. 9. Our team has successfully helped many foreign companies and Chinese enterprises (selected cases) A Global Leading Audio Electronics Company A Leading Telecom Handset Distributor Developed China growth strategy for a global leading audio electronics company to achieve rapid and profitable growth in China, allowing its Chinese business making up to 20% of global business within five years A Leading China Vehicle Manufacturer Developed its overseas expansion strategy focusing on Europe and covering the global auto market; the project includes the market prioritization, market entry approach development and differentiated competitive advantage definition A Leading Chinese Airline Supported strategic transformation and implementation support, including network planning, hub operations, sales and marketing, resource planning, capability building and product innovation One of China's Largest Construction Companies Conducted business strategy validation, overseas expansion, organizational redesign and capability improvement One of the Leading Local Banks in China Reviewed strategy; designed effective governance, organization, processes and incentive systems A Major Mass Transit Company Advised in its overall reform, including developing business strategy; corporate governance; business processes, organizations. This project has created significant, long-lasting impact to not only the client but is widely regarded as a success story for overall Chinese state owned enterprise reform Helped develop its growth and diversification strategy, business process redesign and organizational effectiveness 9
  10. 10. Our team has extensive experience in helping government and companies in China (selected cases) Two Major Shanghai Industrial Companies In Two Separate Projects Shanghai Municipal Government Shenyang Municipality Beijing Capital International Airport A Major Chinese Energy Company A Large Shanghai- based Local Packaging Company A Major Plastic Injection Molding Manufacturer In China Sponsored by the World Bank, developed their modern management systems; scope included BPR; strategy; organizations; production processes. Evaluated the impact of China’s entry into WTO upon the three key industries (Automotive, Financial Services and Telecommunications) Provided senior advisory for the development and construction of the Financial Street of Heping District Assisted to conduct forecast on the future traffic demand in support of its IPO and capacity expansion Assisted its overall development strategy for energy conservation Helped review its business strategies, customer relationship management, organization structure and financial analysis system Helped analyze the development trend of the global industry and its strategic implications 10
  11. 11. Books We are recognized thought leaders in the market Articles 12
  12. 12. Gao Feng is highly recognized in Greater China 12 Dr. Edward Tse is a regular invited member of the appraisal panels for Management Action Awards of Harvard Business Review Chinese Edition (2007-2009) and Future Star Awards of China Entrepreneur Magazine (2006-2009); Harvard Business Review China calls Dr. Edward Tse “one of the pioneers in China’s management consulting profession and one of the most experienced strategy gurus in China.” Direction《⽅方向》, written by Dr. Edward Tse, entered the finalist of “Finance and Management Book Award” held by Hexun.com and was recommended by major newspaper “The First” as a textbook for Chinese State-Owned Enterprise Reform Dr. Edward Tse was appointed by Chinese Central Government as an Independent Director of Baoshan Iron & Steel Co., Ltd. (2006-2012), which won the first Shanghai Exchange “Annual Board Governance Prize” in Dec 2009 Dr. Edward Tse nominated as a special policy advisor for Shanghai Municipal Government (2010) Dr. Edward Tse was awarded "Top 20 Most Admirable Knowledge Stars in China" (2011) Dr. Edward Tse was named as one of the most Influential People in China’s Mobile Communications Industry by Shoujiquan magazine (2007) Dr. Edward Tse nominated as advisor to the Mayor, Luwan District, Shanghai (2007) The articles "Enhancing Soft Power for M&A" and “Direct Cross-strait Flights Are Changing Enterprises’ Competitive Landscape” by Dr. Edward Tse, are honored as First Class Prizes of Excellent Academic Achievements for Reform & Opening-up in Thirty Years by Financial & Securities Institute of Central University of Finance and Economics Dr. Edward Tse was appointed Independent Board Director of two large Chinese SOEs Dr. Edward Tse was appointed a special policy advisor to the Shanghai Government (2008) Business Review Magazine names Dr. Edward Tse as One of China’s Top 10 Most Inspirational business writers (2010)
  13. 13. Recently The China Daily published a cover story interview on Gao Feng recognizing our firm’s value proposition 13 Source: China Daily, June 9, 2014
  14. 14. Name Relevant Experiences Dr. Edward Tse §  Founder, Chairman & CEO; in almost 30 years consulted hundreds of MNCs and local enterprises on entry and growth strategies, M&As, alliances, and corporate transformation §  Created China’s management consulting industry in early 1990’s §  Extensive experience in medical devices, health care and pharmaceuticals §  Special policy advisor to Shanghai government and Member of Strategic Development Commission of Hong Kong Government ; board member of three large Chinese SOEs §  Author of over 100 articles and three books including award-winning The China Strategy Bill Russo §  Managing Director based in Shanghai §  Extensive experience in the automotive and electronics industries, with more than 30 years of experience at driving strategy and operational excellence. §  Over 15 years experience as an automotive executive, including more than 10 years of experience in China and Asia §  Globally recognized opinion leader on China’s automotive industry, with regular contributions to major television and print media including Bloomberg, The Wall Street Journal and The Financial Times Matthias Hendrichs §  Managing Director based in Hong Kong §  Over 18 years of strategy consulting, and corporate management. Held senior management positions in Europe and Asia for BASF and Bertelsmann §  Consulted numerous leading global and local Private Equity funds in Asia on Due Diligence and Value Creation §  Possesses deep industry expertise in Energy & Chemicals, Telco / Media / Technology and Consumer & Retail Paul Pan §  Managing Director based in Beijing §  More than 20 years of industry and management consulting experiences §  Extensive consulting experiences in SOEs, POEs and MNCs with focus on health care, and other B2B and B2C sectors §  Advised a leading Global medical device player on Sales Expansion in China §  Consulted a large European medical devices company on salesforce effectiveness in China §  Advised a large Chinese pharmaceutical distributor on its strategy and business model §  First-hand experiences in globalization, M&A and PMI by working at Lenovo & Google Our senior team has extensive experience in strategy consulting and senior executive management (1/2) 14
  15. 15. Name Relevant Experiences Michael Tse §  Project Director based in Hong Kong §  Has worked extensively in leadership roles with global management consulting firms in charge of Operations / Supply Chain Strategy and Technology & Innovation Management §  Clients include local enterprises and multinationals in consumer products, technology, retail, apparel, aerospace and transportation industries Richard Hu §  Principal based in Beijing §  Extensive experience in the IT & Telecom, Auto and FMCG industries, with more than 25 years of experience at market entry strategy and marketing planning for global brands §  Over 15 years experience as strategic marketing executive, including four years of experience in Motorola China and five years for P&G Chee Kiang Lim §  Principal based in Singapore §  More than 17 years of industry and management consulting experience in Greater China, SE Asia & Australia §  Extensive consulting experiences with both SOEs and MNCs, focusing on resources, industrials, aerospace and technology §  An expert in both strategy and implementation, particularly in leading large and complex business transformation projects involving multiple stakeholders with varied agenda Paul Wang §  Project Associate Principal based in Shanghai §  Industry expert in auto dealerships in China §  Oversaw largest region of VW Imported business in China and led business in Beijing for Abest group §  Experienced in identification of acquisition targets and developing business growth strategies for major automotive JVs in China Our senior team has extensive experience in strategy consulting and senior executive management (2/2) 15
  16. 16. Name Relevant Experiences Carlos M Aquino §  Based in Hong Kong, Senior Advisor to TPG Capital who has served on the Boards of many TPG-owned companies across Asia §  Nearly 30 years at leading global companies including GE; for past 16 years in Asia §  Core focus on coaching Asian SMEs across range of industries in operational transformation Bob Burke §  Based in Shanghai, strategic advisory to international companies - across the spectrum of industry - on business development in China §  Research-driven analysis of market conditions and project feasibility, leading to actionable strategies Alastair Campbell §  Based in Hong Kong, 35 years experience advising Governments, Financial Institutions and Multinational companies on a broad range of transactional and public affairs assignments §  Served as Head of Europe Coverage for ICBC International, as Vice Chairman Greater China for Apco Worldwide, and as China President of Thomson S.A. T. T. Chen §  Based in Shanghai, over 25 years of operations and technical experience in multinational companies in China, Japan and Southeast Asia §  Extensive expertise in manufacturing, operation, supply chain management, and sales & marketing §  Interim general manager for Private Equity portfolio companies and western companies Professor Guo Yi §  Based in Shanghai, Professor at East China University of Science & Technology §  Expert in marketing strategy and organization §  In-depth knowledge on Chinese organizations and management Gao Feng’s other senior team members comprise of senior experts with significant industry experience (1/4) 16
  17. 17. Name Relevant Experiences David Kiang §  Based in Shanghai, more than 35 years of experience in a Corporate Finance and Controlling in Technology sector §  Controller for NXP Semiconductors, former Philips Semiconductors for 15 years §  Chairman of the Supervisory Committee and director of Advanced Semiconductor Manufacturing Co. Ltd Wai Lam §  Based in Beijing, 30 years of experience in the petroleum industry including gas processing, LNG, refinery production optimization, market logistics & distribution, project planning & management §  Advised leading energy companies, e.g. Sinopec, PetroChina, CNOOC and British Gas Justin Leung §  Based in Hong Kong, an experienced consultant with focus on strategic planning, mergers & acquisitions, PMI, BPR, performance improvement, costs reduction and change management §  Former corporate executive at chase.com, in charge of strategic investment in B2B e-commerce for The Chase Manhattan Bank, and Interim‐CEO of AVT Plasma Limited Warren Liu §  Over 20 years of hands-on, general management experience in restaurant service (Burger King and YUM! Brands), financial services (MasterCard), jewelry retail (Stroili Oro), general manufacturing and supply chain logistics (Schlumberger), private equity (Investindustrial) §  MBA/EMBA teaching experience at HBS, Insead, Tongji, Tsinghua, all within Greater China Professor Lu Hongjun §  Based in Shanghai, President, Shanghai Institute of International Finance §  One of foremost thought leaders in the Chinese finance industry §  Extensive network in China’s public and private sectors Gao Feng’s other senior team members comprise of senior experts with significant industry experience (2/4) 17
  18. 18. Name Relevant Experiences Stephen Markscheid §  Over 20 years of experience in healthcare, financial services, and renewable energy industries, including five years leading M&A activities for GE Capital in China and across the region §  Currently serving on the boards of five US listed public companies Fushing Pang §  Based in Shanghai, 25 years of senior management experiences in China and Asia Pacific for HP and TNT §  Broad China investment and JV management, on harmonization, management improvement, coaching and training, and dissolution §  Extensive management consulting experiences on strategy and management improvement Kevin Qi §  Based in Beijing, more than 17 years of experience in M&A and Capital Raising in the field of Financial Institutions, Oil & Gas, Real Estates, Consumer Goods; member of NDRC venture fund panel §  Advised leading corporations, e.g. Sinopec, China Development Bank, New China Life, Far Eastern Leasing, China State Construction, Sinochem, PepsiCo and Seagram Bill Reed §  30 years of experience with airport and airline industries §  Management consulting experience in air transportation sector with focus on diverse group of airports from among the largest in the world to some of the smallest general aviation airports, located in North America, Europe and Asia Janet Shanberge §  Based in Shanghai, Managing Director Asia Pacific for Arcade Marketing, Inc., a global manufacturer of sampling solutions for the beauty industry §  Management consulting background in assisting multinationals develop China business strategies and implementation of such strategies from initial start-up to operational sufficiency and profitability Gao Feng’s other senior team members comprise of senior experts with significant industry experience (3/4) 18
  19. 19. Name Relevant Experiences Elsie Tsui §  Based in Hong Kong, extensive experience in management consulting specializing in innovation management and cultural transformation for companies §  Led many workshops for Fortune 500 companies globally to promote innovation and change §  Served as Associate Director of Public Affairs and Communication with Coca-Cola, Greater China Wang Yan §  Based in Beijing, more than 40 years of industry experience in cement, petrochemicals, oil refining and coking §  GM Assistant and Head of Asset Department of ChemChina Petrochemical Corporation; Chairman of ChemChina Oil and Gas Sales Company Wang Zhuo §  Zhuo (Joe) Wang served as Chairman of the Board, General Manager with Shanghai Jahwa United Co., one of China's oldest and largest cosmetics companies. He also served as chairman of Shanghai Herborist Cosmetics Co. and Shanghai VIVE Business Co. §  Serves on the Global Board of International Trademark Association (INYA) Jeffrey R. Williams §  Based in Shanghai and Beijing, 25 years in retail and wholesale banking at: Shenzhen Development Bank (President), Standard Chartered (CEO - Taiwan), Amex (GM - Taiwan), Citibank (Taiwan, Hong Kong, Shenzhen) §  Established Harvard University Center in China §  Board director of China-based and -related companies & NGOs Zhang Weijun §  More than 25 years in leadership training and development for companies in Asia §  Pioneer of executive coaching for China’s corporate leaders §  Serves as Private Board Chairman for Vistage International, one of largest SME development agencies globally Gao Feng’s other senior team members comprise of senior experts with significant industry experience (4/4) 19
  20. 20. An US Household Durable Goods Manufacturer “Our company has been in China for over 15 years with significant people and infrastructure on the ground. We needed strategic thinkers with lots of in-country experience to help us to the next growth phase. Dr. Ed Tse offer years of local knowledge, combined with the best modern western business aptitude. Ed and his local team help us better understand our market position, competitive advantages and disadvantages and our overall strategic intent and associated elements. They were able to bring lots of "brain power" and high calibre thinking. Their help enabled us to articulate effectively to our US CEO and corporate board in order to win support and funding for our future. We plan to use Ed's services in the years to come in the implementation process, too.” –  Asia Pacific CEO –  June 2007 A Major Chinese Transportation SOE “Over the last seven years, Dr. Tse and his team played an important role in the transformation of our organization. They injected new thinking into our reform, led us in the change of our mindset and thinking, and enabled our organization to migrate to a modern, well-managed organization. Dr. Tse and his team gave us the needed ingredients in making this change. They gave us plenty of constructive advice and feedback. Our reform is a ground breaking imperative and is a decisive major action step. If we had not undertaken the reform, we would not have what we have today” –  CEO –  January 2006 A Major Chinese Telecom Operator “It was four years ago when we began working with Dr. Tse and we have been in touch since then. In fact, I see Dr. Tse as a good friend. In the past four years after the completion of our investment strategy project, we have thoroughly evaluated this program and found it had brought us a lot and was very worthwhile. During this period, we have also worked with other top consulting firms in the world, which are quite similar in their global vision and research capabilities. However, Dr. Ed Tse is at the top of our list if we need consulting assistance in the future, because: (1) they have a good understanding of the characteristics of Chinese enterprises, (2) they can become friends when we are working together. They can provide valuable recommendations after the completion of the project …” –  Vice President of Strategy and Planning Department –  April 2006 A Major Media & Entertainment Company “In the summer of 2008, we were engaged in difficult discussions with our local partner and hired a team led by Dr. Ed Tse to help us think thru future strategy and pricing decisions. We hired Dr. Tse and his team due to their deep expertise in China’s media, entertainment, and leisure industries. Their relationships and experience allowed them to get up to speed quickly on our business issues, and they were able to add a ton of value in a very short time. They approached our issues from countless angles in their search for the truth and the best recommendations. The rigor of their work, their passion, and their expertise gave them great credibility, both with our team and with our partner, which helped us work through our issues in a collaborative way and move our business forward. Our team has formed great relationships with the entire team of Dr. Tse, and we would strongly consider them for any future strategic or operational consulting work in the region. ” –  Director of New Business Development –  September 2008 20 What clients say about us – examples (1/2)
  21. 21. A Major Chinese Airline “Last year, I was responsible for the strategy consulting assignment for our company. I contacted 17 consulting firms. Dr. Tse left a very strong impression with our entire strategy planning team and we have developed a very strong personal relationship. Dr. Tse distinguishes himself in three aspects….he really thinks from the client’s standpoint and wants the client to succeed… he is very learned and knowledgeable and has deep consulting experience. He can combine world-leading knowledge with the realities of Chinese enterprises. Also, he has done many assignments in China and understands Chinese culture deeply. .. He has the vision that he wants to help Chinese enterprises to grow. Even after the assignment is completed, he will offer free advice and support as a friend. I believe Dr. Tse is in the consulting business not because of money, he is searching for a mission and has passion…” – Head of Strategy – September 2003 A Major Chinese State-owned Oil & Gas Corporation “Our energy conservation has achieved a great success --- experience of our energy conservation and the great contribution you made to us in energy conservation potential evaluation projects The opportunity for cutting 7.9million tons of standard coal consumption had gone through a series of scientific evaluation projects. Those projects were underpinned by exhaustive consideration into differences of our business and operation portfolio, and through international benchmarking and feasibility study of specific saving measures. Dr. Tse, a world renowned management consultant, contributed a lot in these evaluation projects.” – Deputy Director, Safety and Environmental Protection Department – January, 2008 A Major Chinese Telecom Equipment Distributor “ … From July to October, 2002, a team led by Dr. Tse successfully completed a strategy assignment for our company. When we look back now, the assignment was completed with flying colors. It has not only obtained high praise from our senior management, but also was highly recognized by our senior advisor group. I would like to sincerely thank Dr. Tse for his contributions on behalf of our company. At the start of the project, we have enquired about consulting firms such as McKinsey, Bain and BCG. It was because of Dr. Tse’s highly professional behavior and his sense of responsibility, as well as his and his team’s deep knowledge in the telecom industry and strategic planning, that eventually help we choose Dr. Tse to do the work……” – Vice President – November 2002 An Investment Subsidiary of a Major Chinese Bank “ In order to achieve the strategic objectives of our company and grow rapidly, we chose Dr. Tse to assist in developing strategy, organizational structure and process design. Dr. Tse and his team conducted substantial studies and analysis in details and developed strategies as well as organizational structure compatible with Hong Kong as an international financial market, so that we can effectively communicate with headquarters, resulting in a very positive operating results. Compared with other international consulting firms that provide us with advisory services, Dr. Tse and his team are more professional, their solution and services are of higher quality, which are more easier for us to achieve strategic objectives. " –  CEO –  November, 2007 21 What clients say about us – examples (2/2)
  22. 22. About Gao Feng Our Expertise in Automotive Our Perspectives on China’s Automotive Market
  23. 23. Our service offering covers the entire automotive value chain 23 Shared Services (HR, Finance, Legal, Planning, Accounting) Turnaround Management Acquisitions / Alliances / Divestitures / PMI Lifecycle Management Strategy Aftermarket/Downstream Strategy Channel Strategy Pricing Strategy Innovation Management Engineering Excellence Supply Chain Management Supplier Integration Lean Manufacturing E-Commerce Process Benchmarking & Redesign Shared Services / Make-Buy / Extended Enterprise Management StrategyOperations/ Systems Manufacturing Strategy/ Footprint Future Technologies Market Research R&D Sourcing Manufacturing Sales & Marketing In-Service Support/ Recycling Gao Feng - Automotive Service Offering Automotive
  24. 24. Our recent assignments have covered some of the most important strategic challenges OEMs are facing in China 24 §  Alternative fuel and powertrain strategy (future potential of HEVs, PHEVs, and BEVs) §  Low-cost R&D benchmarking (low-cost versus low-price car) §  New product development and localization strategy R&D / Product Development 1 §  Core process benchmarking (versus Toyota Production System) §  Optimal manufacturing / logistics footprint §  Best country sourcing SCM / Manufacturing 2 Marketing & Sales 3 Other 4 §  Rental car market entry strategy §  Customer-driven organization §  Strategic decision-making capability and processes Gao Feng - Recent Client Discussions (sample) §  Marketing innovation to retain leadership position §  New customer acquisition and loyalty programs (capabilities-driven approach) §  Optimal dealer network footprint, configuration, and process management §  Premium brand upgrade strategy and multi-brand management ILLUSTRATIVE Automotive
  25. 25. We have extensive experience in automotive and parts sectors in China (1/2) 25 Sectors Examples of Assignments Automotive §  Acquisition strategy and local OEM candidates screening for a major global automotive OEM §  Benchmarking study for the strategic planning of a Chinese leading State-owned enterprises (SOE) OEM in technology trend, R&D strategy and auto finance §  Developing Sales & Marketing Innovation Strategy for a leading Automotive OEM §  Organization and process design for leading luxury auto OEM §  Due diligence on Chinese business operations for a leading Japanese vehicle manufacturer §  Asia business strategy and scenario evaluation for a leading Japanese vehicle manufacturer §  Strategic market assessment for a leading European OEM to determine the optimal finance set up for China §  Benchmarking studies for a global leading manufacturer on its Public Affairs Establishment in China §  Energy demand and supply chain assessment for a global leading automotive manufacturer in its China division §  Overseas market entry strategy development for a leading Chinese SOE OEM §  R&D benchmark for a leading local VM in China §  Building a competitive edge through process and organizational excellence for an auto JV in China §  Assessment of Chinese development stage and trends of alternative powertrains for passenger vehicles §  New market entry strategy for a leading commercial vehicle maker in China §  China JV synergy assessment and strategy formulation for a world leading truck OEM Parts §  China tire industry opportunity assessment and operational due diligence of acquisition targets for a private equity firm §  Due diligence on a capacity expansion investment plan for a Sino-Korean tire manufacturing and sales JV §  Market and channel strategy for a tire manufacturer in China §  Formation of two joint ventures between an Asian Pacific tire supplier and two SOEs Automotive
  26. 26. We have extensive experience in automotive and parts sectors in China (2/2) 26 Sectors Examples of Assignments (cont’d) Parts (cont’d) §  Due diligence and potential partner assessment for a U.S. leading supplier in China §  Chinese OEMs partners evaluation and selection for a Chinese leading supplier §  China Market assessment and partners evaluation for a global leading auto parts manufacturer §  China partnership strategy development and due diligence of potential partners’ strategy for a US auto component supplier §  Development of China growth strategy and acquisition/partnership targets selection for a world leading audio (auto, consumer and professional) manufacturer §  China battery aftermarket study for a major US battery manufacturer §  China auto battery market assessment and manufacturing footprint strategy for a global tier-1 automotive battery supplier §  Global xEV battery market assessment and potential market entry strategy formulation for a global leading auto parts supplier (China Sector) §  Investment opportunity search and market scan on China’s automotive parts and components industry §  Market understanding and strategy for a supplier of the automotive aftermarket in China §  China strategic planning for a major global automotive parts supplier §  Due diligence on a Chinese auto-electronics supplier for a leading private equity firm §  Strategy and transformation of China operations for Japanese auto components supplier §  Aftermarket assessment for U.S. Tier One auto supplier to support JV negotiations with Chinese OEM Others §  Strategic planning and organization governance model design for a fast growing auto dealership group in China §  China market growth strategy for an international leading car rental and equipment rental company §  Assessment of impact on auto sector due to China WTO entry for Shanghai government Automotive
  27. 27. About Gao Feng Our Expertise in Automotive Our Perspectives on China’s Automotive Market
  28. 28. Guidance 28 Following a decade of rapid growth that culminated in a stimulus-driven surge in demand in 2009-2010, the China auto market sharply decelerated, with growth slipping to 2.5% in 2011 and 4.3% in 2012. This brief slowdown was followed by 14% growth in 2013, with overall sales approaching 22 million units. While the market growth has been spectacular, there are rising concerns on the sustainability of this performance as the market may be approaching a saturation point in the traditionally strong coastal regions and tier 1 and 2 cities. In the future, we can expect to see even more intense competition among the foreign and domestic brand vehicle manufacturers as they attempt to adjust to this new pattern while maintaining profitability. Surviving the inevitable consolidation will require automakers to adjust their strategies to this new growth pattern. Automakers and their partners must understand the anticipate these developments and devise strategies to diversify profit streams and maximize profit opportunities.
  29. 29. Contents Part 1: Status of the China Auto Market Part 2: Auto JVs in China Part 3: Competitive Landscape of China Auto Market Part 4: Emerging Trends of China Auto Market Part 5: Key Insights 29
  30. 30. 30 China has become the growth engine of the global automotive industry Source: LMC Automotive, Gao Feng Analysis USA CAGR -0.8% China CAGR 16.4% Russia CAGR -0.6%EU CAGR 1.8% South Africa CAGR -1.5% India CAGR 4.5% Brazil CAGR 6.8%
  31. 31. 31 China’s auto industry regained momentum in 2013, but is still significantly below the explosive expansion of the past decade Source: CAAM, LMC, GF Securities, Gao Feng analysis Commerical Car 20122011201020092008 PV-MPV PV-Crossover, Minicar PV-Basic PV-SUV 2013 +24% +10% Overall China Auto Industry by Sales Segments (Unit: ’000, 2008-2013) CAGR (’08-’13) 9.0% 8.9% 45.6% 46.3% 19.0% Total 18.5% Segment Total 2013 sales = 22.0M (+13.8% yoy) Sales of PV + 15.7% yoy Sales of CV + 6.4% yoy 10,125 1,618 9,494 1,318 7,461 5,040 2,989 10,745 2,000 12,010 14,036 13,749 10,316 6,746 17,929 15,495 18,062 18,056 13,646 9,380 19,306 21,984
  32. 32. 32 Driven by a shift of product preference, 2013 saw strong SUV and MPV segment growth Source: China Automotive Industry CAAM report Literature research; Gao Feng analysis Segment   Sub-segment   2013 sales (’000)   Year on year growth (%)   Vehicle sales   Total 21,984 13.8% Passenger Vehicle   Total   17,929 15.7% SUV   Subtotal   2,765 38.3% Compact SUV 2.0L and below   2,400 77.4% MPV   Total   1,305 45.3% Passenger Car   Subtotal   12,010 11.8% Passenger Car by displacement Disp.≤1.6L 8,492 11.3% 1.6L< Disp.≤2.0L 2,865 14.0% 2.0L< Disp.≤2.5L 573 6.9% 2.5L< Disp. 80 15.9% Other   Pickup, Minibus, etc. 1,625 -28.0% Sales growth of SUV outperform passenger cars SUV grew much faster than other segments, and compact SUV made up 86% of SUV sales 1.6L and below cars account for 70.7% of total passenger car sales Pickup and minibus continues to decline in 2013 after a decline of 0.1% and 8.9% in 2012 and 2011
  33. 33. Chinese passenger vehicle industry will continue to grow for many years, but likely at more sustainable rate in-line with GDP 0 5 10 15 20 25 30 1995 2000 2005 2010 2015 2020 Millions +8% +24% China - Passenger Car Sales ( 1995 - 2020 FCST) ForecastActual §  Annual car sales are expected to slow down significantly from ~24% CAGR before 2010 to ~7% CAGR over the next decade §  The slower expected growth rate is a function of several inter-related drivers, including –  Central government’s desire for slower overall macroeconomic growth –  Elimination of government purchase incentives –  New vehicle ownership restrictions in major cities, such as Beijing and Shanghai *Development Research Center of the State Council Source: Global Insight, Automotive Bluebook, Various Articles, Gao Feng Analysis 33
  34. 34. China is still just entering the accelerated growth phase typical of emerging markets - which will fuel demand growth for many more years Note: Each line of symbols represents a 19-year progression for one country, from 1990 through 2008, GDP Per Capita is in Purchasing Power Parity (PPP) Source: Gao Feng analysis 34 Carsper1,000People GDP Per Capita (Logarithmic Scale) 0 100 200 300 400 500 600 1,000 10,000 100,000 Turkey India China Indonesia Iran Thailand Mexico Brazil Argentina Malaysia Russia Poland Australia Canada Germany U.K. U.S. The S- curve China Discussion §  A country’s threshold of mobility lies near US $10,000 GDP per capita (PPP), where automobile ownership accelerates §  China is at the early taking-off stage of the S- curve §  India remains fairly distant from the mobility inflection point, but continues to make steady progress India
  35. 35. We may see high levels of overcapacity and significant margin pressure within next 3-5 years - shake-out could be inevitable Source: IHS; Gao Feng analysis 35 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Units Overcapacity 201X20102008200620042002200019981996 CapacitySales Planned Capacity Versus Forecasted Car Sales ( ‘000 cars) §  Planned capacity additions will likely exceed vehicle demand in the near future §  Given the hyper-competitive market conditions, net negative pricing pressure will continue to squeeze margins §  Forecasted overcapacity levels may be the catalyst for the long-planned industry consolidation phase §  Competitive dynamics may start to more closely resemble those of developed markets –  Large up and down swings in annual profits –  Strong price- / incentives-based competition –  Increased importance of operational efficiency –  Etc. 2013
  36. 36. Contents Part 1: Status of the China Auto Market Part 2: Auto JVs in China Part 3: Competitive Landscape of China Auto Market Part 4: Emerging Trends of China Auto Market Part 5: Key Insights 36
  37. 37. Since 1984, facing the opening China market, foreign auto OEMs have entered China through establishing JVs with local partners Source: Literature research; Gao Feng analysis 37 1984 Shanghai VW 1993 2003 2010 Brilliance BMW Hainan Mazda Auto JV Establishment Timeline 2006 Soueast Mitsubishi GAC Mitsubishi ChangAn Ford Mazda Beijing Hyundai Yueda Kia 2002 DFM Nissan 1999 DFM PSA ChangAn PSA 20122005 Beijing Benz Fujian Daimler 2007 Nanjing Fiat 2001 ChangAn Ford 1998 GAC Honda DFM Honda FAW Toyota 2004 GAC Toyota Chang An Suzuki 1991 FAW VW Shanghai GM 1997 FAW GM 20091992 Chery Jaguar Land Rover Future DFM Renault Beijing Jeep Closed JV Future JV 1985 GAC PSA GAC FIAT
  38. 38. Currently, most foreign auto OEMs select partners from nine major state-owned auto groups Global OEM JV partnership structure in China (2014) SAIC 上海汽车 FAW 第⼀一汽车 DFM 东风汽车 BAIC 北京汽车 GAC ⼴广州汽车 Chang An 长安汽车 Chery 奇瑞汽车 Fujian 福建汽车 Brilliance 华晨汽车 Strong relationship In China, foreign OEMs are regulated to have no more than two JV partners and 50% share in the JV 38 Geely 吉利汽车 Source: Literature research; Gao Feng analysis
  39. 39. Among all foreign OEMs, VW and GM have the most successful JV partnerships in China Source: Literature research, Synergistics Limited analysis 39 JV Partnership Evaluation GM §  Strategically aligned with SAIC in China VW §  Get full support from SAIC and FAW Hyundai-Kia §  Hyundai dominates the partnership with BAIC. Kia-DF have performed well as a “virtually local” foreign brand Renault-Nissan §  In-depth collaboration with DFM by setting a comprehensive JV, and DFM gives a lot attention and support to Nissan over the whole automotive value chain. The best of the Japanese ventures in China. Ford §  Stable collaboration with Changan, and Ford is having a dominant position in the partnership. Honda §  Long time and smooth collaboration with GAC, while Honda does not get full support from DFM. Limited portfolio and brand range raises questions on sustainability. Toyota §  FAW is a qualified partner and GAC is a partner familiar with Japanese OEMs PSA §  With DFM as a direct investor, PSA will inevitably benefit from higher prioritization among their foreign JVs. §  A questionable move for PSA to produce its high-end DS line with Changan, a partner named for small cars. Suzuki §  Due to bad relationship with Changan, Suzuki does not get Changan’s attention and support §  Though Suzuki only has one partner in China now, it will be still be difficult for Suzuki to find a new partner in China due to Changan’s pressure to government. Mazda §  After Mazda severed its relationship with Ford, Mazda is trying to reset its partnership with Changan by setting up a new JV in Nanjing Fiat-Chrysler §  Fiat and Chrysler’s previous failures in China is mainly because of its partnership and product allocation decisions, and GAC places higher priority with Honda and Toyota Mitsubishi §  In 2012, Mitsubishi first time has a 50/50 JV with GAC §  Though for GAC, MMC is small partner, MMC can get considerable support from this new partner because GAC is interested in MMC’s strong SUV products; Plus, GAC is very familiar with Japanese OEMs
  40. 40. Successful partnership has helped VW achieve a sustainable success in China Source: Auto Insight Data; literature research; Synergistics Limited analysis 40 2009 2010 2011 2012 2,815 2008 2,263 1,924 1,400 1,024 VW vehicle sales in China (2008 – 2013, ‘000units) 3,271 2013 CASE STUDY +26% 25% 29% 31% 29% 29% 32% 8% 7% 6% 5% 5% 10% 8% 7% 7% 7% 5% 6% 6% 6% 7% 8% 7% 8% 10% 9% 10% 10% 9% 18% 17% 17% 18% 20% 18% 5% 2008 2013 13,787 2012 12,644 2011 11,627 2010 8,628 2009 5,729 PV Market Share (2008 to 2013, ‘000 units, %) 17,929 GM1 Hyundai-Kia VW Toyota Renault/Nissan Others 1) GM sales does not include its commercial micro van brand “Wuling”
  41. 41. 41 Volkswagen is a market leader in adapting products to the Chinese consumer requirements §  Developed by Shanghai-Volkswagen, and targeting specifically to China market, LAVIDA has a wheelbase of 2610mm and luxury decoration in rear seat §  LAVIDA also has been equipped with Bluetooth, SD/USB terminal and GPS technology to satisfy the regional consumer preference Examples: VW Group’s development of products geared towards China VW LAVIDA CASE STUDY Source: Literature research; Booz & Company analysis Additional Rear Seat Legroom §  In China, 6AT, aluminum interior decoration, three steering wheel and DVD system are standard, while the global model don’t §  In China, the automobile face is redesigned to fit for local consumer VW PASSAT §  Audi A6L is the first model, lengthened for China market. Audi A6L has a wheelbase of 2945mm, 96mm longer than the original model, with additional rear passenger luxury content Longer Wheel Base Audi A6L Interior Decoration and DVD System Customized Front Face for China Market Longer Wheelbase than the Same Level Sedans Equipped with Local Consumer Preference
  42. 42. Contents Part 1: Status of the China Auto Market Part 2: Auto JVs in China Part 3: Competitive Landscape of China Auto Market Part 4: Emerging Trends of China Auto Market Part 5: Key Insights 42
  43. 43. 2013 Top 10 Auto Groups Sales Volume (Unit:’000) 1 Shanghai Automotive Industry Corporation 5073.3 2 Dongfeng Motor 3534.9 3 First Automobile Works 2908.1 4 Chang’an Motor 2203.3 5 Beijing Automotive Industry Corporation 2111.1 6 Guangzhou Automobile Industry Corporation 1004.2 7 Brilliance Automobile 777.4 8 Great Wall Motor 754.2 9 Geely Motor 519.1 10 JAC 514.3 Mkt. shr. 88% “4 Big Automakers” Shanghai Auto China FAW Group Dongfeng Motor Group Chang’an Auto “4 Small Automakers” Guangzhou Auto Beijing Auto Chery Auto China National Heavy Duty Truck “3 Black Horses” JAC; Great Wall; Brilliance Among China’s automotive enterprises, the top 10 groups now account for 88% of overall sales Source:China Association of Auto Manufacturers, Gao Feng Analysis 43
  44. 44. The top 10 manufacturers represent a mix of Central, Local and Non-State-Owned Enterprises 44 Source: Gao Feng analysis 0 10 20 30 40 50 60 70 80 90 100 Market Share 2% 92% Great Wall 8% Others 100% BRILLIANCE 90% BYD 2% 88% 3% JAC 86% 3% 2% 83% CheryGeely 80% 4% GAIC 76% 5% BAIC 71% 9% CHANGAN 62% 10% FAW 52% 13% DFM 39% 16% SAIC 23% 23% Cumulative Market Share of Top Auto Players in China (% in terms of sales volume, 2013) §  Cumulative market share of Top 10 players is 88% §  Consolidation needed to meet this goal Central State-Owned Enterprise Local State-Owned Enterprise Non-state-owned Enterprise
  45. 45. In the future, one consolidation goal is that 2-3 groups annual sales volume exceed 2M, and 4-5 group annual sales volume exceeds 1M 45 Source: LMC, Automotive Accuracy, Gao Feng analysis 269 2,638 549 250 423 627 127 754 405 549 18 514 777 1,004 2,111 2,203 363 23 656555 414 981 1,4541,648 2,908 3,535 616 2,919 5073 1,112 3,961 506 506 Top Vehicles Sales Manufacturers in China (in 000’Units, 2013) §  Five Groups: Sale Volume >2M §  One Group Sale Volume >1M §  Still 4-5 quotas for groups sales volume exceed 1M §  Chery and JAC are in the same province Central State-Owned Enterprise Local State-Owned Enterprise As the market slows, it is now time to accelerate industry consolidation Commercial Vehicles Passenger Vehicles BRILLIANCE JAC BYD CheryGeelyGAICBAICCHANGANFAWDFMSAIC Great Wall 263 Non-state-owned Enterprise
  46. 46. Local VMs have benefitted from tax incentives but have lost momentum recently 46 1)  Excluding CV volumes from SAIC-GM-Wuling Source: Auto Insight China Report, LMC, Gao Feng analysis International OEMs/Brands China PV sales 2008-2013 (incl. import, million units) Top 8 Domestic OEMs Local OEMs/Brands (2008,2013 Partial List) International/ Local OEM China PV Market Share 15.6% 10.3% VW 17.8% BMW 2.2% 1.1% Suzuki 1.7% 3.1% 3.1% 3.6% PSA Hyundai 9.0% 8.1% GM1 8.8% 8.7% Toyota 5.4% 2.7% Nissan 6.7% 6.4% Honda 4.5% 8.3% Ford 4.2% Chery Changan Great Wall Brilliance BYD Geely FAW 30% 70% 5.7 2012 11.6 2010 72% 28% 12.6 2011 13.8 2009 8.6 International OEMs/Brands (2008, 2013 Partial List) 2008 2013 2008 2013 20132008 17.9 DFM 1.5% 2.2% 1.2% 1.7% 2.8% 3.4% 3.5% 3.9% 3.8% 3.0% 1.1% 2.8% 3.0% 3.6% 1.9% 2.4% 2008 2013 74% 26% 69% 31% 74% 26% 75% 25%
  47. 47. GM and VW are leaders in the largest and fastest growing China passenger car market Passenger Vehicle Sales by Top 10 Manufacturers (2002 Vs. 2013) Others 39% Changan Ford 5% FAW Toyota 3% Geely 3% Chongqing Changan 3% Dongfeng Nissan 5% Beijing Hyundai 6% SVW 8% SGMW 8% FAW 9% SGM 8% 1512 1607 1585 1525 1031 926 551 549 560 936 7937 302 208 111 96 85 65 59 50 46 41 197 000’ Unit 000’ Unit 31% Others 21% Dongfeng Nissan 4% Geely 5% Chery 5% Guangzhou Honda 6% Changan Suzuki 7% Dongfeng PSA 9% Tianjin Faw 10% SGM 12% FAW-VW 22% SVW Source: China PV Database; CAAM, Gao Feng analysis 2002 2013 47
  48. 48. VW, Hyundai and GM are the top 3 players, while 3 Japanese brands’ shares slightly declined even before Diaoyu island issue 1) GM sales does not include its commercial micro van brand “Wuling” Source: LMC, Auto Insight Data; Gao Feng analysis 48 25% 29% 31% 29% 29% 32% 6% 8% 7% 6% 5% 5% 10% 8% 7% 7% 7% 5% 6% 6% 6% 7% 8% 7% 9% 9% 10% 10% 10% 9% 8% 10% 9% 10% 10% 9% 18% 17% 17% 18% 20% 18% 3%4%5%5% 5% 2008 General Motors Hyundai-Kia Volkswagen 2013 13,787 100% Other Ford Geely PSA FAW Honda Toyota Renault/Nissan 3% 3% 4% 3% 4% 4% 2012 12,644 3% 3% 3% 2011 11,627 3% 4% 3% 2010 8,628 3% 3% 2009 5,729 3% 4% 3% 4% 4% PV Market Share (2008 to 2013, ‘000 units, %) 1) Toyota, Nissan and Honda combined shares declined from 24% in 2008 to 17% 2013 17,929
  49. 49. The premium segment has outpaced overall market growth and still has headroom for growth ‘000 Units 350 300 250 200 150 100 50 0 VOLVO LEXUS BENZ BMW AUDI 19981996 400 2000 2002 2004 2006 2008 2010 2012 Source: Global Insight 2012, Booz & Company Analysis Premium Car Sales as % of Total Passenger Vehicles (2005 ~ 2015E) Major Premium Brand’s Sales History in China 0 5 10 15 20 25 30 35 2016 Taiwan level USA level 2006 2008 2010 Germany level 2004 % of PV 2014E2012 49 2013
  50. 50. On premium market, Audi dominates B and C segments; Benz and BMW jointly lead D segment Source: LMC, Global Insight 2010 50 Major Luxury Brands’ Share by Segments (2013) 21% BMW X3, X5 X6 14% Land Rover 9%, Benz GLK,M,GL 6%, Lexus 5%, VW 5%, Porsche 5%, Cadillac4% VW C D 8% Porsche 15%, Audi A8 32% BMW 7 26%, Audi Q5,Q7 SUV 38%, Audi A6 15%, Benz C 5%, Lexus IS 2%, Volvo S40 26%, BMW 3 5% Cadillac B 51%, Audi A4 8% Benz E 31%, BMW 5 10% Lexus ES 35% Benz S Others
  51. 51. For all of these luxury car brands, China has become one of the most important market Source : Literature research; Gao Feng analysis 51 Market sales share of major brands (2013) Global Sales 1.57M units 43% 10% 31% 16% The US Other China Germany 52% 20% 16% 12% Other China Germany The US 45% 15% 21% 19% Other China The US Germany 1.96M units 1.46M units 492K Units 391K Units 218K Units
  52. 52. Looking forward, we believe GM and VW will keep leading the market, and Hyundai/Kia and Ford will be strong followers Overall Assessment for Capability Competitiveness 1) 1)  Evaluation for GM includes the consideration on its commercial micro-van business Source: Gao Feng analysis Growing Struggling Mass Brand Luxury Brand 52
  53. 53. Our judgment is based on a detail scanning of OEMs’strength in each functional area JV Mgmt. R&D Product Parts Production MKTG Sales & ServicesOverall A&B C&D SUV VW GM Hyundai-Kia Renault-Nissan Ford Toyota Honda PSA Suzuki Mazda Fiat-Chrysler Mitsubishi Source: Literature research; Gao Feng analysis 53
  54. 54. Contents Part 1: Status of the China Auto Market Part 2: Auto JVs in China Part 3: Competitive Landscape of China Auto Market Part 4: Emerging Trends of China Auto Market Part 5: Key Insights 54
  55. 55. Key trends in China’s automotive industry Trend 1: Sustainable demand growth fueled by urban economic development Trend 2: Demand migration and shifting preference driven by both first-time buyers & upgraders Trend 3: Relationship oriented approach to address lower tier market demand Trend 4: Hyper-competition across the automotive market segments Trend 5: Localized innovation to extend product reach and grow share Trend 6: Increasing focus on the automotive aftermarket Trend 7: Investment in Energy Saving Vehicles and related infrastructure Trend 8: Decision marketing and emerging O2O model mandated by Big Data AUTOMOTIVE MARKET IN CHINA 55
  56. 56. Urban Rural 2020F 1,413 57% 43% 2010 1,343 48% 52% 2008 1,328 46% 54% 2005 1,308 43% 57% 2002 1,285 39% 61% 1999 1,258 35% 65% Rapid urbanization and the rise of an urban middle class is the fundamental driving force of private demand for cars China’s Urban Population 1999-2020F Source: Literature research; Gao Feng analysis 167 325 1,321 124 400 1,432 2020E 0-14 15-24 2007 25-44 45-64 65+ China Population Breakdown by Age 2007 Vs. 2020E, Million Population Increase 2008 Vs. 2020 +32 -17 +43 -22 +75 A significant portion of the 45-64 age group will be wealthy by 2020 Comments §  By 2020, urban population share anticipated to rise to 57%, a fundamental driving force of private demand for cars §  By 2020, China's population in the age group 45 and above will increase 118 million, while the 25-44 age group will decrease 22 million §  By 2020, with the fast wealth accumulation, a significant portion of the 400 million 45-64 age group people will be wealthy §  Those affluent mid-age people will be major customers for luxury products TREND 1: SUSTAINABLE DEMAND GROWTH FUELED BY URBAN ECONOMIC DEVELOPMENT 56
  57. 57. Repurchase buyers Low tier cities Post 80/90s Female Emphasis on the development of hatchback and sedan between RMB 80,000 to 120,000, the improvement of safety performance, reduction of failure rate, and providing quality commitment Increased resources should be applied to the development of sedan and SUV over RMB 120,000, energy-efficient engines, and automatic transmission technology Focusing on the development of hatchback and sedan between RMB 80,000 to 180,000, advanced security system, power system and intelligent multimedia systems. Females are attracted to enhanced and preventative safety, automatic transmission, and multimedia technology, with a particular interest in safe and refined hatchbacks Diversified demand determines that product development and feature combination need to reflect differentiation and customization TREND 2: DEMAND MIGRATION AND SHIFTING PREFERENCE DRIVEN BY BOTH FIRST-TIME BUYERS & UPGRADERS Strategies §  Value emerging and growth customer groups from Post 85/90s (Millennial), female buyers, lower tier cities, repurchasers §  Network planning shall adapt to regional demand variations: for personalized services in Tier 1 cities, professional service in Tier 2 cities, outlet accessibility in Tier 3 cities §  Engage in develop and launching smart to use, fun to drive, compact- sized cars and SUVs §  Use online platforms, especially OEMs websites, for in-depth interaction with customers Source: Literature research; Gao Feng analysis 57
  58. 58. Automakers need to realign their product and marketing strategies with distinctive consumer dynamics of lower tier cities • TV commercial, internet • Word of mouth is most influential • Outdoor ads board, car display • Dealer showroom • 90% are first time car buyers • Car budget is 80,000RMB ($12,000) on average • 100K CNY($15,000) disposable income annually per household Income and Budget • Less financial pressure • More positive life attitude • Car purchase for community and family care • Make less controversial choice Purchase motivation • less product knowledge but faster purchase process. • Value durability, economy and convenience • Trustworthy and value for price brand Purchase Consideration Information Channel Vehicle pricing to be affordable and competitive Innovative brand strategy such as “Mid-market brand” development Build a trustworthy and valuable brand image Address consumers’ roominess and performance needs Smartly decontent vehicles’ “impractical” electronics and features Enhance vehicles’ durability and versatility Take advantage of every accessible touch point with consumers to set up emotional bonding and delivery brand message Consumer Profile Survey findings Automakers’ approach Source: Nielsen 2010 Dec. China forum, Gao Feng analysis TREND 3: RELATIONSHIP ORIENTED APPROACH TO ADDRESS LOWER TIER MARKET DEMAND 58
  59. 59. Chinese car market has seen substantial price falls and accelerated product launches over past decade, undermining VM profitability Source: CAAM, Forum, Nomura Research Discussion • Vehicle prices have declined about 40% since 2002; Major driving forces are • A sharp reduction in tariffs since 2001 WTO entry • Increasing competition • Hyper competition after local brands get involved • Average MSRP is estimated to fall 2-3% in 2010, a much lower rate than previous years • With increased capacity and demand slow- down, automakers will face increasing downward pricing pressure in 2011 § VMs have to launch more refreshed models or new vehicles to fix down pricing pressure PV price development by segment in China Average Sales Price (ASP) index in China Number of 2004 = 100 100 90 80 70 60 0 2013201220112010200920082007200620052004 120 0 2013201220112010200920082007200620052004 80 60 100 Luxury Large Medium Small Mini TREND 4: HYPER-COMPETITION ACROSS THE AUTOMOTIVE MARKET SEGMENTS 59
  60. 60. Establishment of R&D and production development capability in China is a market mandate now R&D and Product Development Capability - Global OEMs in China Stage - I Localization: 40% Stage - II Localization: ~70% Stage - III Localization: ~100% Stage - IV Complete PD Capability Product development and launch of VW Lavida done in China for the domestic market GM: Developed GL8 for the China market with 100% localized content. PD and engineering changes led by PATACFocused on meeting minimum local content requirements to preserve quality, engineering and brand differentiation. Continuing to increase the local content as supply chain develops in China. R&D plans are unclear at this point. Followers Leaders Hyundai: Almost 100% local content for Elantra. Highly established relation-ships with local supply base and JV ventures for domestic ER&D and PD activities Audi: Reached ~70%-80% localization content (by value), designed products to meet China market •  IP rights, Technology protection, etc. are some of the concerns that prevented rapid investments in development of R&D / PD capabilities in China. Source: Literature research; Synergistics Limited analysis TREND 5: LOCALIZED INNOVATION TO EXTEND PRODUCT REACH AND GROW SHARE 60
  61. 61. Domestic dealers have the potential to maximize value capture by realizing synergies across a variety of after market services Dealer Revenue Breakdown, China vs. U.S 2010 27% 18% New car sales U.S 100% Used car sales 4% China After-sales service, auto parts, financing, insurance Dealer Profit Breakdown, China vs. U.S 2010 After-sales service, auto parts, financing, insurance 47% 31% 100% Used car sales China U.S New car sales 5% Source: Morgan Stanley report, literature research, Gao Feng analysis TREND 6: INCREASING FOCUS ON THE AUTOMOTIVE AFTERMARKET 61
  62. 62. In the “12-5” period, China has committed to developing seven emerging industries Note: 7 strategic emerging industries include energy efficiency & environmental protection, new generation information technology, bio-technology, high-end equipment manufacturing, alternative energy, new materials, electric vehicle Source: China 12-5 plan; Literature research; Synergistics Limited analysis 62 Leading Industries Seven Emerging Industries Producer Services Industry 12-5 Plan Strategy Highlight §  Continue to increase value added §  Eliminate outdated capacity §  Develop advanced equipment manufacturing industry §  Increase government support to develop the 7 emerging industries* of strategic significance §  GDP contribution of the 7 industries should increase to 8% by 2015 from the current 2% §  Cultivate the culture industry to be a leading industry §  Implication: the share of value added of GDP by the culture industry needs to double from the current 2.5% to 5% Drivers for the Trend §  China’s leading industries, such as steel industry and petrochemical industry, consume a larger amount of energy per unit of GDP, whose growth will not be sustainable with the limited reserve of energy Energy Consumption Increasing Labor Cost §  With China’s labor cost rising, Chinese industries have been losing edge in international competition §  It is necessary for China to transform its industry structure to make it more technology and innovation-driven Lack of Natural Resources §  China has very limited reserve of natural resources such as ore, oil, etc., which motivates the Chinese government to cultivate industries that are less natural resource consuming TREND 7: INVESTMENT IN ENERGY SAVING VEHICLES AND RELATED INFRASTRUCTURE
  63. 63. Electric vehicles in Chinese central government’s 12th five-year plan (2011-15) Highlights §  No. of electric vehicles on the road: 0.5 MN by 2015 §  Production capacity of vehicle batteries: 10Bn WH. Cost of vehicle batteries should halve due to increased production scale Guidelines §  R&D: continue the country’s 3-by-3 R&D framework and increase its pace in EV commercialization §  Infrastructure: increase the network of EV charging stations §  Technical standards: set Chinas own EV standards as well as participating in setting international standards §  Expand the use of EV in the public transport sector §  Increase technical collaborations between EV stakeholders §  Develop technical and R&D talents Alternative-energy vehicles development plan (2011-20) Highlights §  Financials: Chinese central government to provide 100Bn RMB for the next 10 years in developing alternative-energy electric vehicles §  Number of electric vehicles on the road: 5~10 MN by 2020. Equivalent to 20% of all private passenger vehicles §  Production capacity of BEV: 1Mn a year by 2020 Program coverage §  R&D and technical developments §  Development of core EV components §  Commercialization, demonstration and roll-out pilot programs §  Establish network of charging stations in public places (such as car parks) China government has established their medium-term targets for NEVs, and planned around 5~10Mn PARC by 2020 Source: Literature research, Synergistics Limited analysis TREND 7: INVESTMENT IN ENERGY SAVING VEHICLES AND RELATED INFRASTRUCTURE 63
  64. 64. High-end Demands Conspicuous Consumption CustomizationYounger Users New Value Proposition Demand Structure Transformation Chinese Dream Big dataMobilityUrbanization New Technology TREND 8: DECISION MARKETING AND EMERGING O2O MODEL MANDATED BY BIG DATA Consumer Behavior Changes Have Brought New Market Opportunities Source: Literature research; Gao Feng analysis 64
  65. 65. TREND 8: DECISION MARKETING AND EMERGING O2O MODEL MANDATED BY BIG DATA Future-oriented marketing will become more systematic and precise •  Online new media: repurchase users, post 80/90 consumers, female drivers •  Internet portal/vertical sites, mobile phone, three micros (Wechat, weibo and micro films) •  Offline experiences: low-tier cities consumers, female drivers •  Dealership in-store promotion, test driving, auto shows, relatives and friends WOM •  Full participation in marketing management system •  Customer oriented marketing positioning •  Demand oriented product development •  Satisfaction oriented channel construction •  Combination of brands, products, services and customer relationships •  Rich sensory experience for the consumer •  Innovative marketing facilities •  PLAN: have market insights, formulate marketing goals •  DO: monitor the implementation process and the effect of real-time optimization •  CHECK: assess the marketing effect, quantify investment returns •  ACTION: firm assessment index system, standardize decision-making process Cross-Media Marketing Experience Marketing Value Chain Marketing Precise Marketing Source: Literature research; Gao Feng analysis 65
  66. 66. Contents Part 1: Status of the China Auto Market Part 2: Auto JVs in China Part 3: Competitive Landscape of China Auto Market Part 4: Emerging Trends of China Auto Market Part 5: Key Insights 66
  67. 67. Key Insights 67 §  China will keep the position as a growth engine of the global auto market, and China will grow sustainably in the future at a rate in-line with GDP §  Since 1984, most foreign OEMs have set up JVs with Chinese partners, and Volkswagen has proven to be the most sustainable business performer over this period §  The top 10 automotive groups account for 88% of total sales – however the market remains highly fragmented. Currently, GM, VW are mass-market leaders, and Audi and BMW are jointly leading the premium market. Looking forward, we believe that GM and VW will keep leading the mass-market, and Hyundai/Kia, Ford and Nissan will be strong followers. German OEMs will continue to dominate the premium market. §  We observed seven emerging trends on China auto market: 1.  Sustainable demand growth fueled by urban economic development 2.  Demand migration and shifting preference driven by both first-time buyers & upgraders 3.  Relationship oriented approach to address lower tier market demand 4.  Hyper-competition across the automotive market segments 5.  Localized innovation to extend product reach and grow share 6.  Increasing focus on the automotive aftermarket 7.  Investment in Energy Saving Vehicles and related infrastructure 8.  Decision marketing and emerging O2O model mandated by Big Data
  68. 68. 68 Please find below the contact details for our office locations in Beijing, Hong Kong and Shanghai or contact us at info@gaofengadv.com Contact us Hong Kong: Gao Feng Advisory Company Level 3, Three Pacific Place 1 Queen’s Road East Admiralty, Hong Kong Tel +852 2588 3554 Fax +852 2588 3499 Shanghai: Gao Feng Advisory Company Level 20, The Center 989 Changle Road Shanghai 200031, P.R. China Tel +86 21 5117 5853 Fax +86 21 5116 6899 Beijing: Gao Feng Advisory Company Suite 703, Tower B, Winterless Center 1 West Dawang Road Chaoyang District Beijing 100026, P.R. China Tel +86 10 8557 0676 Fax +86 10 8557 0670

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