sector growth sustainable
By Luo Man and Alexander Wan
China's auto industry is growing up, but the enormous profit
margins of yesteryear may be gone forever, said a group of CEOs
and industry watchers at the 10th CEO roundtable, with the theme
"Auto China," organized by China Daily in Shanghai
the Chinese auto market of the future will take more of its
profits from derivatives, like financing and post-sale products,
than directly from production.
growth over the years will continue slightly ahead of GDP growth,"
said Dr. Christoph Stark, Honorary Chairman of the roundtable
and President and CEO of the BMW Group in China. However, "the
one thing we all agree upon... is that those days of high profits,
for the time being, are over."
see generally the trends of a maturing market," said Stark.
"I think the market will become more similar to... markets
in other parts of the world."
still sees (China) as the most attractive market and nobody
wants to miss out," Stark said. "Everybody is holding
on for the China magic to come back."
the magic, while not altogether gone, is fading and the industry,
instead of racing forward with its pedal to the floor is proceeding
at a slower, but steadier, speed.
tide of mergers and acquisitions, price fluctuations, new models
and new companies is likely to continue for a while though.
the Chinese bubble burst? Our view is that the bubble is a long
way from bursting in the next five to ten years. We have quite
a bullish view in the longer term," said Paul Gao, a partner
at consultants McKinsey and Company China.
the huge profit margins of 2002 and 2003 have probably gone
for good, Gao said.
main factors are likely to determine the future growth of the
auto industry: Deregulation, infrastructure and consolidation.
are likely be affected by other factors, such as environmental
protection and China's huge employment needs, which may pose
a challenge to the immediate growth prospects of both Chinese
and foreign manufacturers.
a hot topic in China right now. Perhaps the hottest topic,"
said Stark. "To my mind one word keeps coming up and that's
one wanted to describe the Chinese auto market with a single
word, then fluidity might best fit the bill.
to Stark, change is the mainstay of the market, both in growth
rates and market share.
have an almost dramatic increase in new companies and new models.
Anyone who has been to the Shanghai Auto Show can see that,"
he said. The Shanghai Auto Show ends today and has brought together
just about every auto manufacturer in the world. "I think
now we have the largest number of manufacturers in China worldwide."
Koenig of Internationaler Messeund Ausstellungsd GMBH, organizer
of the Auto Shanghai 2005 Show, agrees," For the first
time we've seen major global brands coming in as groups. We've
seen a lot of new technologies, products and concepts displayed
at this A level show."
the same time, local companies are following the Korean model
of developing local and foreign markets simultaneously.
one of the challenges for automakers may well be developing
new business models that combine both growth and profitability.
market brands in other markets have done a very good job in
destroying shareholder value, by achieving growth without profitability,"
question for many of them is what are they doing differently
in China to ensure they are achieving profitable growth. Unfortunately,
most of these companies are not doing anything different."
said a quantum leap is needed in the industry, like the two
during the last century that caused shifts in the auto market
first, Gao said, was the development of mass production by Henry
Ford. The second was Toyota's innovative production system,
which ensured reliability and elevated Japanese auto makers
to the world stage.
(Chinese manufacturers) can figure out the third revolution
in the auto industry... they will never be able to catch up,"
Gao said. "They don't have the required capacity to play
the same game."
automakers also face different challenges in coming years.