Sunday, May 3, 2009

Chinese Auto Dealer Generalizations / Shameless Waiguoren Biaoyan

Yesterday I made a one-day trip to Suzhou to meet the friend of a friend. The arrangement was to take the train to Suzhou and a taxi to the venue of Suzhou’s third annual auto show. There I was to meet a man who either works, or worked, for Nanjing Auto – I was never quite clear on that part. This was a particularly interesting prospect as I have been interested to learn more about the December 2007 merger between Shanghai Auto and Nanjing Auto – one of only two big mergers to have happened in China’s auto industry so far this century.

The Train

First I must comment on the train. It had been about eight years since the last time I took a train in China. In fact, the last time I took a train, it was from Shanghai to Suzhou, so I figured I knew what to expect. And, as with pretty much all of my assumptions about China, a new reality proved me wrong.

This train is a high-speed luxury train that looks very similar to Japan’s Nozomi Shinkansen, though not quite as fast.



The train is called “CRH”, and signs in both the train station and on the train itself identified it as such, but I could never figure out what CRH means. There were no Chinese character phrases that I could find whose pinyin equivalent corresponded to CRH.

The train’s Chinese name was, unfortunately, “和谐号” (harmony). I say “unfortunately” because, as with most top-down propaganda concepts, this one is being applied to every bus, train, park and outhouse that needs a name, to the extent that it risks inducing cynicism among many in the general population. Even the best of ideas can be oversold, and this still seems to happen quite often in China.

The Dealership

As it turned out, the friend of a friend whom I was supposed to meet is the “owner” of a local, domestic brand auto dealership who promptly introduced me to the general manager (GM) of his dealership. The general manager quickly walked me to his car and drove me away from the auto show to the dealership where I spent the better part of the day trying to 1) desperately think of questions I would want to ask of an auto dealer (since I had not been prepared to meet one) and 2) translate those questions into Chinese in one part of my brain while having an actual Chinese conversation with another. (For those of you who haven't turned 40 yet, it's hard.)

The dealership I visited is located away from the center of Suzhou in an arrangement similar to an American “auto mall”. This strip of road, about a mile long, had a dozen or more dealerships selling all of the foreign and domestic brands I would have expected to see: GM, Ford, BYD, Changan, Roewe, MG, Volvo, Chery, Great Wall, Volkswagen, Toyota, Nissan, etc.

In yet another mind-blowing revelation, I discovered Chinese auto dealerships to be far more sophisticated than I would have expected. (I have to be careful with generalizations here because I haven’t visited any other dealerships yet, but in many cases I asked whether what I saw was typical of other dealerships, and the answer was generally “yes”.)

This particular dealership, whose name I won’t mention for the sake of privacy, had a large and inviting showroom with comfortable leather chairs, a coffee and champagne bar, a flat-screen TV and a kids’ play area. And it was staffed with several young, friendly, energetic sales people, both men and women.



While the showroom seemed typical of most American showrooms, the service area completely surprised me. First, the area where the cars are serviced was huge and clean.



It looked like it could have accommodated more than 20 cars (picture only shows about half of the area); however, it only held about three or four. I asked the GM why he had such a huge service area and so few service customers. He said it was because the number of car owners in China is still relatively few, but that they built a large service area to serve the inevitable future growth in business. He said that the other dealerships in the auto mall were similarly designed.

He then showed me the customer service waiting area, which again, was very large, had comfortable leather chairs, yet another coffee bar, yet another flat-screen TV, several internet workstations and a huge floor-to-ceiling glass wall that allowed all customers to look into the service area and watch their cars being worked on.



Of course, as with the service bays, there were no customers in sight. Still, the amount of preparation and forethought that went into planning for future customers was more than I ever expected to see. I haven’t personally visited more than a few dozen auto dealerships in the United States, but I have never visited one so well appointed. I have certainly never visited a dealership that encouraged customers to observe the work being done on their cars. (This may be because I have never owned a car for which I wasn't willing to pay cash.)

Though I don’t want to completely reproduce all of my notes here (I have to save something for my dissertation!) here are a couple of other learnings that I thought were interesting.

I noticed that the dealership’s inventory was rather small (fewer than 20 cars), and asked whether customers were able to order cars direct from the factory. The GM said that, yes, customers could order a car and get it in about a week. Only a week?! I thought I had misunderstood, so I asked whether this was done by swapping cars with another dealership. No, he said, that is an order direct from the factory. Wow!

I am not certain whether that is possible with any other manufacturer – American or Japanese – but perhaps my readers can set me straight on this. All I remember about ordering cars from a factory is when my dad, who was an Oldsmobile man, ordered his company cars from an Olds dealership back in the ‘70s and ‘80s. Seems like it took at least a month or two back then. I don’t get the sense that factories are much faster nowadays, but I could be wrong. And even if they are faster (and I also realize the demand for particular models is an important factor), the fact that a Chinese factory can build a car to order and deliver it in a week is quite impressive.

Another question I had for the GM was about consolidation in the auto industry. I asked him why, despite the central government’s strong desire to reduce the number of players in the industry, this had not happened yet.

Without even pausing to ponder the question, he said the answer was very simple. These companies are able to make a profit selling cars – demand is still greater than supply in China. When that changes, we can expect to see attrition in the auto industry, and not necessarily consolidation. After all, who would want to buy a loss-making car company – unless, of course, they have some kind of technology that may be valuable if exploited by a larger, stronger company.

Just taking the GM’s assertion at face value, this makes me wonder whether some of the smaller players simply don’t account for the cost of capital. Is it possible for a small manufacturer to generate a positive cash flow from turning out just a relative handful of cars every year? (And if so, who would want to buy their cars, and why?)

Again, perhaps some of my readers may wish to opine on these questions.

The Auto Show

After my time at the dealership, I was returned to the auto show venue where I was treated to an exhibition put on by MG, one of Shanghai Auto's domestic brands (which was bought from the UK in 2005). Several stunt drivers delighted the crowd by whizzing around a parking lot in front-wheel drive, 1.4 liter MG3s and a rear-wheel drive, rear-engine, 1.8 liter MG TF which I think is a descendant of the old MGB Roadster.



One drove on two wheels within about 10 feet of dozens of spectators.



And two others moved back-and-forth on a teeter-totter.



As luck would have it, I was the only “waiguo pengyou” (foreign friend - a phrase I have come to detest) in the audience, so I was drafted to ride in the one of the teeter-totter cars. In my defense, I couldn’t hear what they were asking me to do due to loud music; I assumed they were offering me a better vantage point from which to take pictures. It was indeed a better vantage point.



After the ride, I thanked my driver whose non sequitur of a response was, "我们来自台湾". (We're from Taiwan.)




The Japanese Dinner


I returned to Shanghai on the cool CRH train and treated myself to some wonderful Japanese comfort food after a long and exhausting day (grilled salmon, yakitori, miso soup, rice). Upon being greeted with the familiar “irrashaimasse”, I instinctively spoke a confused mixture of Chinese and Japanese, which, while completely intelligible to the bilingual waitresses, drew attention I was not expecting.

They immediately wanted to know why a guy like me speaks Chinese and Japanese, but I was quick to tell them that my Japanese had atrophied from non-use. I guess that didn’t put them off because I really don’t know how to order Japanese food in Chinese. Draft beer will always be “nama biiru”, and grilled chicken will always be “yakitori” to me.

Then, when I picked up my chopsticks with my left hand, well, that just put them over the top. For the rest of my dinner I had a crowd of about six girls watching me eat while the other four tables of customers were basically ignored.

Feeling satisfied with my comfort food, and a little giddy from the nama biiru, I decided to ham it up on the way out. I made my exit with a slight bow from the waist and a well-honed “gochisosamadeshita”. My ego basked in the ensuing chorus of “waaaahs”.

Sometimes this kind of attention is embarrassing – like when I was drafted to ride in the teeter-totter car while there were dozens of locals standing around who would have given their eye-teeth for such an experience. Sometimes it’s kinda nice – like when half a dozen twenty-something girls think you’re pretty cool (something that never happened to me even when I was twenty-something). Regardless, I’m always happy to get my anonymity back when I return home.

___________________________

I realize this post was a bit long, so here again is the big question on which I would love to get anyone’s feedback:

What accounts for the general manager's assertion that most, if not all, Chinese auto companies are “making a profit selling cars”? Is it conceivable that a small-scale auto manufacturer could produce a positive cash flow if the cost of capital is basically ignored?

And, of course, I welcome feedback on anything else as well. Thanks for reading!