Trans-Pacific Trade - China becoming automotive powerhouse

By: | at 07:00 PM | Channel(s): International Trade  

Component manufacturers shift strategies from export-to-China to local manufacturing and exports-from-China
By Karen E. Thuermer, AJOT
The world of auto manufacturing has changed lanes for what many anticipate will be an expressway to profits. With many manufacturers facing low profit margins, auto assemblers—or original equipment manufacturers (OEMs), are turning to new markets where consumers have pent up demand and the money to purchase. Today that means China.
Total vehicle manufacturing capacity in China is projected to exceed 14 million vehicles by 2007 as a result of the huge investment of domestic and foreign automakers.
With China’s income levels on the rise, companies such as General Motors are expanding their presence in China. GM Chairman and CEO Rick Wagoner recently announced his company’s plans to increase its presence in China by re-launching its Cadillac luxury nameplate as both an import and domestically assembled brand. GM is now a distant second to Volkswagen in China’s market. GM has plans to introduce almost 20 models over three years.
To meet its goal, GM is expanding its Shanghai GM and SAIC-GM-Wuling manufacturing facilities, both of which will soon need additional capacity to meet rising customer demand. The Shanghai expansion, which will take the joint venture’s total production capacity to 300,000 vehicles per year, is expected to be ready for production by the end of 2005. The expansion of SAIC-GM-Wuling in the Liuzhou, Guangxi Zhuang Autonomous Region will give GM’s mini-vehicle joint venture with SAIC and Wuling Automotive an additional 150,000 units of annual capacity, increasing total capacity to 336,000 units per annum. Production is expected to begin in 2006.
“We are excited about expanding our presence in China in order to keep up with the rising demand for vehicles, especially passenger cars,” says Wagoner. “GM remains focused on offering the right products in the right segments at the right time. Our latest actions will enable us to take advantage of existing opportunities and position us for long-term success in the world’s fastest-growing vehicle market.”
GM is also relocating its Asia-Pacific regional headquarters from Singapore to Shanghai by January 2005.
Slower auto components pace quickens
China’s auto component sector has been developing at a much slower pace than the car production sector. The reason is that the sector is scattered around the country in various provinces. The government is increasingly interested in promoting this sector so that China can rely less of imports and, thereby, develop its own component suppliers. Up until recently, the lack of auto components meant that in order to expand China’s internal auto industry, it had to rely on imported complete knockdown units (CKD) or semi-knocked down (SKD) vehicles.
Guangdong Province in Southern China, for example, claimed to have as many as 49 automobile manufacturers (six vehicle makers and 43 auto re-producers or assemblers) in 1999, an impressive amount. But the annual production was merely 20,000 to 30,000 units in total during the year.
Today business has jumped onto the fast lane. In 2003, China’s output of motor vehicles exceeded four million units, including more than two million passenger cars, thereby reviving China up to become the fourth biggest automaker in the world.
At the end of this year, a three-year transient protection period for China’s automotive products will end and quotas will be lifted on import automotive products. One would think this would result in an opportunity for suppliers to flood the market with imports. But that is not the case, since OEMs prefer to work on a just-in-time basis. During this transition period, auto component suppliers, like their auto assembly counterparts, have been opening plants in China. China is attractive as a place to not only meet local demands, but also to take advantage of low cost production.
Delphi, the world’s leading automotive components supplier, offers a good example. Delphi

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American Journal of Transportation