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China's 3 musketeers race against the global auto giants
By John Gong |
April 28, 2011, Thursday
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THE indigenous auto industry in China is a fascinating topic for those studying national technology development and industrial policies.
And the auto show in Shanghai provides a rare glimpse into how China's automobile technology has been advancing vis-a-vis its competing global giants.
To many experts in the industry, the very definition of "indigenous" is an emotionally charged word subject to controversies.
Overall, domestically developed automobiles come from two camps, one that I call the Greenfield camp, consisting of companies that are indigenous from the very beginning, such as Chery, BYD, and Geely, and the other that I call the "Derivative" camp, consisting of companies that started off as joint venture (JV) partners with global giants, but are now starting to roll off cars under their own brand names.
I won't take sides on the "indigenous" definition war, as in my opinion, all roads lead to Rome. In this piece, I will talk just about the Greenfield indigenous companies, which I call the three musketeers including Chery, BYD and Geely.
Behind the glitzy new concept cars on display, my largest impression of the Shanghai Auto Show lies in the technology area - the three musketeers are catching up rapidly with their global giant competitors in powertrain technologies and new alternative power technologies.
As usual, BYD is the company that steals the thunder, with the showcase of its Ti+DCT technology. Ti stands for turbo-charging and direct fuel injection, the two new directions of engine development pioneered by Volkswagen, which it calls TSI. DCT is the dual clutch transmission, a recent form of automatic transmission popularized by Volkswagen, again in China, although it calls it DSG.
Catch up
Call it catch-up, call it copycat, whatever it is, it is meant to compete head on with the latest 1.4 liter TSI+DSG powertrain package found on many VW models including Sagitar, Bora, Golf and others. The only problem is BYD's Ti+DCT is still in the lab, while VW's TSI+DSG is on the road. My guess is that the technology gap here is two to three years.
Chery's turbo-charging and direct fuel injection technologies were already on display at last year's Beijing Auto Show. At the Shanghai Auto Show, it is boasting an alternative new automatic transmission technology called Continuous Variable Transmission (CVT). Now CVT has already been deployed on some Nissan cars in China. So again, Chery is playing the catch-up game.
In areas of new alternative technologies, the emphasis is on all-electric cars, as this is the direction trumpeted by the Chinese government. All of the three musketeers came with all-electric cars.
It seems to me that all the indigenous companies place a large amount of emphasis on self-developing core technologies. Chery, the poster-child of China's indigenous auto policy, has been investing regularly 10 percent of its revenues in R&D for many years.
But even if Chery, BYD and Geely are able to close the technology gap with their giant global competitors in a short period of time, they still face an uphill battle that may take many years of relentless effort. Each has its own problems that are difficult to overcome.
BYD seems to be the victim of its own success. As the company is stretched thin with its rapidly increasing sales, product quality and dealer relationship are starting to see difficulties.
Weak link
The marketing side of Chery has been its weakest link so far, as it has failed to come up with blockbuster cars after a barrage of new model trials in recent years failed to generate strong sales. Chery's lack of manufacturing quality consistency, product market appeal, and a good brand name are all adverse elements in its uphill battle to catch up with global giants.
Geely is taking a shortcut with its Volvo acquisition. This strategy is banking on Volvo's technologies and brand image elevating those of Geely. Some analysts think this can be a double-edged sword in that the Geely-Volvo combination might dilute Volvo's value more than helping with Geely's competitiveness. The jury may be still out, as Mr Li Shufu, Geely's chairman, has a history of making gutsy moves and succeeding against all odds.
The three musketeers are working hard like a stubborn tortoise racing against a hare. They are making impressive progress as can be seen at the Shanghai Auto Show. But even if their respective strategies succeeds, it is surely going to be a long march.
For the most part, automobiles are status symbols, particularly in China. The image of an auto brand takes a long time to change for the better, but only a few months for the worse. For example, Hyundai's auto quality has improved greatly over the years compared with itsto its disastrous entry into the North America market 20 some years ago, as witnessed by several of its models repeatedly making it to the JD Power's top list. But Hyundai cars are still regarded as cheap cars in the US today.
Chinese auto makers are merely following the footsteps of Hyundai 20 years ago. If they persist in developing truly indigenous technologies and consistently improving quality, they may have a chance to be the next Hyundai in China.
(The author is associate professor of economics at the Beijing-based University of International Business and Economics. E-mail: johngong@gmail.com.)
And the auto show in Shanghai provides a rare glimpse into how China's automobile technology has been advancing vis-a-vis its competing global giants.
To many experts in the industry, the very definition of "indigenous" is an emotionally charged word subject to controversies.
Overall, domestically developed automobiles come from two camps, one that I call the Greenfield camp, consisting of companies that are indigenous from the very beginning, such as Chery, BYD, and Geely, and the other that I call the "Derivative" camp, consisting of companies that started off as joint venture (JV) partners with global giants, but are now starting to roll off cars under their own brand names.
I won't take sides on the "indigenous" definition war, as in my opinion, all roads lead to Rome. In this piece, I will talk just about the Greenfield indigenous companies, which I call the three musketeers including Chery, BYD and Geely.
Behind the glitzy new concept cars on display, my largest impression of the Shanghai Auto Show lies in the technology area - the three musketeers are catching up rapidly with their global giant competitors in powertrain technologies and new alternative power technologies.
As usual, BYD is the company that steals the thunder, with the showcase of its Ti+DCT technology. Ti stands for turbo-charging and direct fuel injection, the two new directions of engine development pioneered by Volkswagen, which it calls TSI. DCT is the dual clutch transmission, a recent form of automatic transmission popularized by Volkswagen, again in China, although it calls it DSG.
Catch up
Call it catch-up, call it copycat, whatever it is, it is meant to compete head on with the latest 1.4 liter TSI+DSG powertrain package found on many VW models including Sagitar, Bora, Golf and others. The only problem is BYD's Ti+DCT is still in the lab, while VW's TSI+DSG is on the road. My guess is that the technology gap here is two to three years.
Chery's turbo-charging and direct fuel injection technologies were already on display at last year's Beijing Auto Show. At the Shanghai Auto Show, it is boasting an alternative new automatic transmission technology called Continuous Variable Transmission (CVT). Now CVT has already been deployed on some Nissan cars in China. So again, Chery is playing the catch-up game.
In areas of new alternative technologies, the emphasis is on all-electric cars, as this is the direction trumpeted by the Chinese government. All of the three musketeers came with all-electric cars.
It seems to me that all the indigenous companies place a large amount of emphasis on self-developing core technologies. Chery, the poster-child of China's indigenous auto policy, has been investing regularly 10 percent of its revenues in R&D for many years.
But even if Chery, BYD and Geely are able to close the technology gap with their giant global competitors in a short period of time, they still face an uphill battle that may take many years of relentless effort. Each has its own problems that are difficult to overcome.
BYD seems to be the victim of its own success. As the company is stretched thin with its rapidly increasing sales, product quality and dealer relationship are starting to see difficulties.
Weak link
The marketing side of Chery has been its weakest link so far, as it has failed to come up with blockbuster cars after a barrage of new model trials in recent years failed to generate strong sales. Chery's lack of manufacturing quality consistency, product market appeal, and a good brand name are all adverse elements in its uphill battle to catch up with global giants.
Geely is taking a shortcut with its Volvo acquisition. This strategy is banking on Volvo's technologies and brand image elevating those of Geely. Some analysts think this can be a double-edged sword in that the Geely-Volvo combination might dilute Volvo's value more than helping with Geely's competitiveness. The jury may be still out, as Mr Li Shufu, Geely's chairman, has a history of making gutsy moves and succeeding against all odds.
The three musketeers are working hard like a stubborn tortoise racing against a hare. They are making impressive progress as can be seen at the Shanghai Auto Show. But even if their respective strategies succeeds, it is surely going to be a long march.
For the most part, automobiles are status symbols, particularly in China. The image of an auto brand takes a long time to change for the better, but only a few months for the worse. For example, Hyundai's auto quality has improved greatly over the years compared with itsto its disastrous entry into the North America market 20 some years ago, as witnessed by several of its models repeatedly making it to the JD Power's top list. But Hyundai cars are still regarded as cheap cars in the US today.
Chinese auto makers are merely following the footsteps of Hyundai 20 years ago. If they persist in developing truly indigenous technologies and consistently improving quality, they may have a chance to be the next Hyundai in China.
(The author is associate professor of economics at the Beijing-based University of International Business and Economics. E-mail: johngong@gmail.com.)
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