The streets of China, teeming with millions of new cars, is the best example of "flexible manufacturing" and "just in time inventory" or marketing to be precise. The latest shapes, grafted onto well disguised old generation platforms of known international brands have had extended lives, looking cosmetically different from the original. In fact, its hard to discern which is the clone of whom.
This year, China will have an installed manufacturing capacity of 18 million vehicles/year against a likely domestic market of 13million vehicles. Those extra 5 million units have nowhere to go but exports. In a world with a production overcapacity of 5 million units five years ago.
China's lure is the single market of a huge and growing middle class of some 300-million, equivalent to the population of North America or the European Union. Copyright wise, the Chinese car makers got their basic technology transfer licenses from global car makers eager to get a piece of the action. But this large market is pock marked with the typical inefficiencies of a developing economy; nativistic laws that protect province economies, lopsided concentration of infrastructure, murky bureaucracies and a mish mash of commercial statutes that have variable enforceability.
Major multinational JVs are almost always with the city or provincial development agencies, which are the "owners" of the people's capital. Thus the corporation is named after the city/province [Jianling, Guangdong, Shanghai etc.]. Being government-owned capital by another name, the market is not as unitary as desired. Protecting market share in the home turf is common, as the local government promotes buying the home brand. Sales distribution areas are strictly enforced. For example; certain VW models sold in Shanghai, are not sold in another province as that province hosts a joint-venture factory for another VW model.
Depending on who is doing the counting, China has anywhere between 100 to 300 car companies. These range from component module suppliers, the inevitable backyard assemblers to full blown technology sharing joint ventures with all the world's motor vehicle industry multinationals. Historically speaking, the UK got its start similarly with hundreds of garages making cars, some being mere copiers of the others. Analogous to our once numerous backyard manufacturers of Jurassic Jeeps.
Despite China's dour Communist past, there is no shortage of colorful characters in the Chinese automotive scene. All of them share a can-do spirit which, only 30 years ago, would be out of place in any State owned Enterprise, much less in China.
Recently, China's Geely, bought Volvo from Ford for US$1.8B. Geely produced 329,100 cars last year, but Volvo has 5 times Geely's revenues. Geely is led by 47 year old Li Shufu. Mr. Li is the kind of larger-than-life character, more Rockefeller than Henry Ford, that populate China's car industry. He is a poet and is known to be a wily negotiator, which led Rothschilds to offer Volvo to Geely in 2007. He has a typical rags to riches story; son of a small business owner in Taizhou City, Zhejiang, started with a camera and bicycle, photographing tourists, moved on to selling silver extracted from photo film in his studio. Then he made refrigerators, later motorcycles and then started making cars 12 years ago.
Under Mr. Li, Geely acquired a sizable stake in Manganese Bronze, producer of the black London cab and is now assembling them in China. Geely is not backed by powerful provincial governments, unlike the other car makers in China. But Geely spreads favors around the provinces by establishing assembly and engine plants, supported by soft loans. Geely will be needing all those factories as Mr. Li is currently developing 42 different models, plus a Rolls Royce look alike introduced in last year's Shanghai Auto show. Five years from now, Geely is aiming to produce 2M cars not counting doubling Volvo's sales to 600,000 by 2015.
Even younger is Wang Fengying, 40, CEO of Great Wall Motors Ltd. of Baoding City, Hebei province. GW, the only other privately owned car company besides Geely, is also one of China's top ten car manufacturers. GW's rival Geely are pursuing growth by buying Volvo. BYD, on the other hand is making waves by pushing li-ion batteries for electric cars, tying with Daimler and attracting investment from the sage of Omaha, Warren Buffet. SAIC meantime, gobbles up multi-brand foreign joint venture [JV] partners, like GM and VW. Its indigestion in taking up South Korea's Ssangyong SUV makers is a mere hiccup as SAIC badged Ssangyong Kyron seem to be selling well in China.
GW is doing nothing as spectacular. Instead, Ms. Wang has quietly laid the ground work for a push into Europe by having 4 Great Wall model families go through the lengthy process of EU Vehicle Type Approval. Ms. Wang is aware of China's brand handicap and wants to establish Great Wall as a quality brand. Great Wall's path to volume growth is modeled on Hyundai's pursuit of quality. Accordingly, Ms. Wang holds GW suppliers to high standards and in order to establish a commitment to quality, GW pays its suppliers on time. A rather uncommon practice in China's car industry. Unlike most of China's car makers, GW is not expanding volume by producing micro-commercials like the Wuling, which is essentially like the local multi-cab.
GW's Ms. Yang has identified the best seller and brand builder to be the quintessential boy's toy: the SUV. The Great Wall Hover, an Escape sized 5-seat Italian designed SUV, is based on a modified Toyota 4runner ladder frame. Great Wall is represented locally by Statemotors.
The local presence of Chery, Foton, JAC, Lifan, FAW and Chana is certainly small compared to the size of the China market. But we are no strangers quality China made cars since 2002. Witness the Chevrolet Venture van and later, the Chevrolet Lumina classic American car, 100% made in the People's Republic of China.
There have been laughable quality control lapses for some initial entries, particularly the models made to domestic standards instead of the higher export standards. But the determination is there to be a force to be reckoned as they target the world market. After all, the Chinese are only following in the footsteps of the Koreans and the Japanese that went before them. Driven by the need to make a unique selling proposition in a crowded mainstream market, the Chinese will undoubtedly extract the latent individuality that Chinese car makers are looking to enhance.