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Home » Opinion » Chinese Views
How car maker drives ahead by chucking rules
By John Gong |
April 29, 2010, Thursday
|
Print Edition
Print Edition
THE flamboyant BYD founder and CEO Mr Wang Chuanfu, the richest man in China a month ago based on stock holdings calculation, certainly runs his company contrary to the popular teachings of business school.
Mr Wang adopts a unique strategy that defies conventional wisdom in the auto industry, and so far he has been proving that he is right.
Conventional wisdom says that China needs to develop core technology capabilities such as powertrain systems so as not to be held hostage to foreign competitors. But Mr Wang has no problem buying outdated 4G15 engines from a Mitsubishi partner in China.
Conventional wisdom says that Chinese auto makers should stop the "Shanzhai" strategy (essentially making knock-off versions of popular foreign models) and develop their own cars in terms of style and brand image. Mr Wang's F3 model, which by the way sells like hotcakes and has been the No. 1 model in sales for over a year now, is obviously a copycat of Toyota Corolla any way you look at it.
In fact, at one point, F3's close resemblance to Corolla was one of the selling points promoted by many BYD dealers and they actually distributed free Toyota marquee plates for owners to change.
Conventional wisdom says that the auto industry is currently going through immense consolidation and vertical disintegration worldwide.
Previously fierce competitors are now making alliances, sharing platforms and technologies, and outsourcing ever more internal functions and manufacturing of auto components to specialist companies.
Bucking the trend
BYD bucks the trend by internalizing as many functions and component manufacturing as possible and virtually does everything in house. It doesn't have an entourage of component suppliers like global auto giants.
Contrary to Chery and Geely that buy state-of-the art manufacturing equipment from Germany, much of the equipment on BYD's assembly line is built by BYD itself. It even makes its own paint for cars, and rumor has it that it is considering entry into manufacturing.
Conventional wisdom says that the auto industry is becoming more capital-intensive as the assembly line is getting more automated.
BYD makes a living out of substituting man for machine, from its first business in battery manufacturing and now on to auto making. BYD's capital investment per new car model is the lowest in the industry. Its assembly line imparts the impression of dilapidation and backwardness. Yet, the human sea strategy churns out cars as fast as its robot-laced rivals.
Conventional wisdom says that an auto maker needs to foster a loyal and cooperative relationship with dealers, and grow together with them. BYD opens its new dealer franchises all over the country as fast as it churns out cars, making them compete fiercely against each other. And it sets their sales targets that many fail to meet the level. Cordiality is certainly not the word coming to mind when it comes to BYD's relationship with its dealers.
Amid all the things at oddd with orthodox auto manufacturing, BYD is wildly successful. It entered the auto business merely five years ago, and yet it has been virtually doubling its sales every year, taking the number-four position in the industry in terms of units sold.
Granted, BYD cars are cheap, as cheap as less than 30,000 yuan (US$4,395). Yet, the company is also extremely profitable.
The latest statistics from China's automobile regulatory body show that BYD's net profit margin at 25 percent, the highest in the industry.
It is growing so fast and it is so profitable that legendary investor Warren Buffet made an equity investment in BYD last year. What is his return so far? A 10-fold increase in value of stock holdings.
Many people doubt whether BYD will be able to sustain the current growth model, or worse still, whether a bubble is brewing amid all the rosy signs for the moment. Mr Wang Chuanfu assures shareholders that BYD is different. Again I say the jury is still out.
(The author is associate professor of economics at the University of International Business and Economics in Beijing. His email: johngong@gmail.com)
Mr Wang adopts a unique strategy that defies conventional wisdom in the auto industry, and so far he has been proving that he is right.
Conventional wisdom says that China needs to develop core technology capabilities such as powertrain systems so as not to be held hostage to foreign competitors. But Mr Wang has no problem buying outdated 4G15 engines from a Mitsubishi partner in China.
Conventional wisdom says that Chinese auto makers should stop the "Shanzhai" strategy (essentially making knock-off versions of popular foreign models) and develop their own cars in terms of style and brand image. Mr Wang's F3 model, which by the way sells like hotcakes and has been the No. 1 model in sales for over a year now, is obviously a copycat of Toyota Corolla any way you look at it.
In fact, at one point, F3's close resemblance to Corolla was one of the selling points promoted by many BYD dealers and they actually distributed free Toyota marquee plates for owners to change.
Conventional wisdom says that the auto industry is currently going through immense consolidation and vertical disintegration worldwide.
Previously fierce competitors are now making alliances, sharing platforms and technologies, and outsourcing ever more internal functions and manufacturing of auto components to specialist companies.
Bucking the trend
BYD bucks the trend by internalizing as many functions and component manufacturing as possible and virtually does everything in house. It doesn't have an entourage of component suppliers like global auto giants.
Contrary to Chery and Geely that buy state-of-the art manufacturing equipment from Germany, much of the equipment on BYD's assembly line is built by BYD itself. It even makes its own paint for cars, and rumor has it that it is considering entry into manufacturing.
Conventional wisdom says that the auto industry is becoming more capital-intensive as the assembly line is getting more automated.
BYD makes a living out of substituting man for machine, from its first business in battery manufacturing and now on to auto making. BYD's capital investment per new car model is the lowest in the industry. Its assembly line imparts the impression of dilapidation and backwardness. Yet, the human sea strategy churns out cars as fast as its robot-laced rivals.
Conventional wisdom says that an auto maker needs to foster a loyal and cooperative relationship with dealers, and grow together with them. BYD opens its new dealer franchises all over the country as fast as it churns out cars, making them compete fiercely against each other. And it sets their sales targets that many fail to meet the level. Cordiality is certainly not the word coming to mind when it comes to BYD's relationship with its dealers.
Amid all the things at oddd with orthodox auto manufacturing, BYD is wildly successful. It entered the auto business merely five years ago, and yet it has been virtually doubling its sales every year, taking the number-four position in the industry in terms of units sold.
Granted, BYD cars are cheap, as cheap as less than 30,000 yuan (US$4,395). Yet, the company is also extremely profitable.
The latest statistics from China's automobile regulatory body show that BYD's net profit margin at 25 percent, the highest in the industry.
It is growing so fast and it is so profitable that legendary investor Warren Buffet made an equity investment in BYD last year. What is his return so far? A 10-fold increase in value of stock holdings.
Many people doubt whether BYD will be able to sustain the current growth model, or worse still, whether a bubble is brewing amid all the rosy signs for the moment. Mr Wang Chuanfu assures shareholders that BYD is different. Again I say the jury is still out.
(The author is associate professor of economics at the University of International Business and Economics in Beijing. His email: johngong@gmail.com)
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