Tuesday, January 31, 2012

FTI Presentation ready for download

The presentation from last Fridays AFG Meeting is ready for online viewing and download. Please click here to access the presentation.

Monday, January 30, 2012

Chinese-branded cars lost market share in 2011

In early 2009 China's government released a fairly comprehensive policy for the auto industry called the "Automobile Industry Adjustment and Stimulus Plan (汽车产业调整和振兴规划)." 

Among the major targets included in this plan was for an increase in market share of China's home-grown auto brands (also known as 自主品牌). One of the targets was for Chinese-branded  passenger cars (轿车, aka, sedans) to increase domestic market share to 30 percent in three years' time (by the end of 2011).  (Up from about 26 percent at the end of 2008.)

China's auto industry enjoyed robust sales growth of 48 percent in that very year, giving the Chinese brands a 29.7 percent market share by the end of 2009.  And just in case the leaders weren't satisfied with rounding up to 30, Chinese brands achieved a 30.9 percent market share by the end of 2010.

Unfortunately, the tide turned against manufacturers of Chinese-branded cars in 2011, causing them to lose market share for the first time. Though the absolute number of Chinese-branded cars sold increased, foreign-branded car sales grew at a faster rate, dropping the domestic brands to a 29.1 percent market share -- just in time to miss the target that had been set out for them three years earlier.

And this came in a year during which luxury automakers enjoyed enviable sales growth in China: Audi-37%, BMW-37%, JaguarLandRover 61%, Cadillac-73%.

Why did Chinese cars suddenly lose market share to the foreign brands?

Did quality decline? Not at all!  In fact, Chinese brands have been closing the quality perception gap with the foreign automakers.

What happened was that another provision in the "Adjustment and Stimulus Plan" of 2009 distorted sales growth in 2009 and 2010.  The plan included a 50 percent cut in auto sales taxes for vehicles with engine sizes of 1.6 liters or less -- in other words, small cars.

The stimulus really worked! In 2009 sales of cars in the 1.6 liter and below segment grew 71 percent while sales in all other passenger car segments grew by "only" 23 percent. And the beauty of this stimulus plan was that, at the time of its introduction, fully 85 percent of the market for 1.6 liter and under cars was occupied by Chinese brands.  This was none other than a plan to stimulate sales of Chinese brands.

The stimulus also worked in 2010, but it was later halved to only a 25 percent sales tax cut, and then, by the end of 2010, the stimulus was lifted completely -- resulting in disappointing performance in 2011.

Of course, we can't blame it all on lifting of the stimulus because, once the stimulus was enacted in 2009, foreign automakers scrambled to enter the 1.6 liter and below segment as quickly as possible.

Still, this does illustrate well the distorting effects of government schemes on markets. And it is somewhat ironic that the same plan that brought such growth in 2009, took it away once the stimulus provision was allowed to expire.

Nice turnout at AFG Meeting on Friday 27th of January

A very interesting evening with more than 40 members attending the presentation of Khun Charn Saralertsophon, Executive VP from Federation of Thai Industries (FTI).

Khun Charn covered the effect of the 'Great Flood' in 2011 emphasizing the resilience of the industry which is expected to 'bounce back' and display further growth in 2012 and the following years.

The presentation will be made available for download within the next days for AFG Members.

In an unannounced surprise presentation, Uli Kaiser introduced a preview of the upcoming THAI AUTO BOOK 2012 which will be available for the iPad. It's a comprehensive directory of Thai based OEM's Tier 1s, organizations, industrial parks, events and supporting industries providing basic information about the companies, address data, contact information, maps and is aimed at professionals both in Thailand as well as in ASEAN and overseas in Europe and the US. You can register your business for free here.

A directory of the Thai Automotive Industry

After this presentation, AFG President Jim Beeson presented AFG member and correspondent Doc Iain Corness with a 50,000 Baht grant towards his 'Retro Racing Program'. The Doc will invite AFG members to future race events and can also organize 'special outings'. From usually well informed circle we heard the he is looking for additional supporters – and can be contacted by email in this matter.

After the talk the NOVA PLATINUM had prepared a fabulous poolside networking setting which inspired many participants to stay around, discuss and exchange ideas.

Wednesday, January 25, 2012

Activities of 2011 for The Leland Chapter

May 2011: Historic Dossin Maritime Museum,www.detroithistorical.org a luncheon at the historic Detroit Yacht Club, www.dyc.com speaker: Mark Phelan/Detroit Free Press automotive columnist/topic: 'Trends in Automotive Technology & Design'. We extended our invitation to local car clubs, auto hobbyists. John Northup became our 'Official Photographer'.
July 2011: gathering only held at Piquette T-Plex www.tplex.org museum in Detroit for the Reception of The Fashion & The Automobile-An Exhibit In 10 Eras.
October 2011: Formal meeting & tour of the new Michigan Military Technical & Historical Society Museum: www.mimths.org. A new museum dedicated to portraying and preserving the story of Michigan civilian & military personnel in 20th Century conflict. The agenda included a brief look into the Mike Davis book: 'Arsenal of Democracy'. Our guest speaker: William Porter/retired GM Pontiac Design Studio Director/topic: 'Birth & Design of Jeep'
December 2011: Close the year with a Holiday Party at the beautiful Stahls Automotive Foundation museum. www.stahlsauto.com Guest speaker: member Brian Baker and students from College for Creative Studies www.collegeforcreativestudies.edu Topic: Harley Earl and the digital revolution of design at GM. Brian is The Adjunct Faculty For Design History at CCS and National Development Consultant/AACA Museum Hershey, PA www.aacamuseum.org See below for pictures of the event.

SAH Christmas meeting Stahl'sAutoMuseumDec03,2011

Click on image to review photo album .. Photo album courtesy of:
Chapter Photographer / John (Flash) Northup

Tuesday, January 24, 2012

Flood-Affected Auto Makers In Thailand To Resume Full Production In Q1 2012

The Thai Automotive Industry Association (TAIA) said on Tuesday that flood-affected auto makers in the country would resume full production by the first quarter of 2012, Thai News Agency (TNA) reported.

Pickups could be the winners after the floods

The first month of the New Year is about to pass by but the problems caused by the flood last year have not been completely taken care of.

Honda, the second-biggest passenger-car manufacturer in the country, is still unable to resume production while other major auto-makers, despite not being directly affected by the flood, are facing parts disruption and are not capable of producing at full capacity.

Thai Auto output to reach 2 million units in 2012

The Federation of Thai Industries (FTI) on Monday said it expects automotive production in the country to reach a record high of two million vehicles in 2012.

This would translate into a year-on-year increase of 37 percent compared to 2011 when production plunged 11.4 percent to 1.46 million vehicles.
Of total, 733,950 were manufactured for export, accounting for 50.3 percent of total. This showed a 17.9 percent drop from a year earlier. Domestic demand decreased as slightly as 0.80 percent, as 794,080 vehicles were sold in 2011.

Monday, January 23, 2012

BMW pushes for CO2 excise rate

BMW reaffirmed its position on the implementation of a carbon dioxide (CO2) emission-based excise tax rate for vehicles to enable Thailand's automobile industry to achieve sustainable development and set a precedent for global environmental concerns.

Thailand's current excise tax system for vehicles is calculated based on engine size and horsepower. BMW said engine displacement and horsepower are not indicators of an environmentally friendly vehicle as opposed to the level of CO2 emissions.

Thai governments have discussed BMW's policy for many years, said Ronald Gentsch, managing director for vehicle distribution at BMW AG and honorary investment adviser at the BoI Fair 2011.

Timing Belts Fail Without Warning!

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Sunday, January 22, 2012

Malaysian auto sales growth 'modest' in 2012

Sales fell 0.9 percent to 599,877 units as Japan's earthquake and tsunami and record floods in neighbouring Thailand caused supply chain disruptions, said Aishah Ahmad, head of the Malaysian Automotive Association (MAA).

Malaysia -- Southeast Asia's second-largest vehicle market after Indonesia, according to the MAA -- had seen 2010 sales grow 12.7 percent to 605,156 units thanks to a robust domestic economy and strong consumer confidence.

Bangkok Post: New auto show plans to rev up next month

New Auto Show at BITEC:

The First Auto Show Thailand 2012 (FAST), the newest member of Thailand's myriad motor shows, will be held from Feb 29-March 4 at the Bangkok International Trade & Exhibition Center (Bitec) on Bang Na-Trat Road.

The event is indeed the first auto show on the calendar.

King of Auto Products (KAP), the organiser and subsidiary of Autocar (Thailand), said the inaugural edition of FAST is purely an automobile sales event, with an emphasis on certified used cars.

Thursday, January 19, 2012

Indonesia becomes biggest automotive market in ASEAN

Indonesia has replaced Thailand as ASEAN`s biggest automotive market with car sales reaching 890,410 units in 2011.

"Thailand has been projected to restrain with a total industrial volume of 800,300 units from year to year in 2011," Vice President of Automotive Practice at the research company Frost & Sullivan Asia Pasifik, Vivek Vaidya, said in Jakarta on Wednesday.
First Chairman of the Association of Indonesian Motor Vehicles Industry (Gaikindo) Jongkie D Sugiarto also said that Indonesia`s car sales in 2011 had exceeded Thailand`s.

Thailand Stocks Up: Aapico, Ratchaburi, Somboon, Sub Sri Thai

The automotive industry was upgraded to “overweight” from “neutral” by Suchot Tirawannarat, an analyst at KGI Securities (Thailand) Pcl, who cited the recovery of production following floods in the country. The analyst’s top buys are Somboon Advance Technology Pcl (SAT TB) and Aapico Hitech Pcl (AH TB).

Tuesday, January 17, 2012

REUTERS: Toyota confident in Thailand, invests despite flood

Toyota Motor Corp said on Tuesday it would spend 8.2 billion baht ($257 million) on investment in Thailand, showing its confidence in the Southeast Asian car sector hub despite floods last year that caused severe disruption to the sector.

The Japanese car maker is building a manufacturing plant at Gateway industrial park and restarting a production line at its Thai Auto Works (TAW) plant, where its Fortuners were produced, Kyoichi Tanada, president of the Toyota Motor Thai unit, told a briefing.

Monday, January 16, 2012

Malaysia to Sell Stake in Proton

Malaysia's state investment firm said it will sell its 43% stake in national car maker Proton Holdings Bhd., the latest in a series of government sales meant to spur growth in the important Southeast Asian economy.

The sale, to Malaysian conglomerate DRB-Hicom Bhd. for 1.29 billion ringgit ($412 million), also could also Proton's competitiveness in a crowded Asian auto market.

Wednesday, January 11, 2012

GM Wants its 1% back. Good luck.

GM announced yesterday (again) that it wants to repurchase a one percent stake in its joint venture with Shanghai Auto (SAIC) that it sold for a handful of magic beans a few years ago.

Back in December of 2009, GM and SAIC announced a major change to their partnership which involved GM selling one percent of the SAIC-GM joint venture (JV) to SAIC for $85 million.  This announcement also included details on a new Hong Kong-registered joint venture through which GM and SAIC would partner to conduct business in other countries, primarily India.

The net result was that GM and SAIC were no longer 50:50 owners in the main China JV.  With the one percent transfer, SAIC became the majority owner with a 51 percent stake.  On paper at least, GM had been reduced to the role of junior partner.

At the time, GM management explained that the purpose of the one percent transfer was in consideration of some future help from SAIC.  And though it wasn't explicitly stated, GM statements sort of hinted that SAIC's help may come in the form of help with future funding.

Early speculation was that GM needed the money.  And since GM had emerged from bankruptcy only a few months earlier, that seemed to make sense, except that, in the whole scheme of things, $85 million didn't really seem like a lot of money.  At year-end 2009, the company had over $14 billion in cash on its balance sheet, so it wasn't cash poor.  And with a current ratio (current assets/current liabilities) of 1.13, it wasn't facing an impending liquidity crisis.

Since I happened to be in Shanghai only a few weeks after this announcement was made, and since I was fortunate enough to land an interview with a senior SAIC executive who was integral to the negotiations with GM, I asked the SAIC executive to explain why GM would give up any leverage it had over the JV for a measly $85 million.  His explanation made a little more sense.

In short, SAIC wanted to be able to consolidate the top-line revenues of the JV into its parent company income statement, and under accounting rules, it could only do this if it owned more than 50 percent of the company.  Chinese companies were (and are) under a great deal of pressure from Beijing to move up in the rankings of the Global Fortune 500, and since the Fortune list looks at sales, not profits, SAIC needed to make its sales number bigger.

Does this sound ridiculous?  It did to me too.  But it's also the truth, as this particular executive, on two different occasions, emphasized to me the importance of moving up the list of the Fortune 500.

So what did GM get for handing over control?  According to the SAIC executive, GM wanted desperately to continue expanding its global footprint, but was facing two hurdles.  First, as GM had recently exited bankruptcy, the terms it could receive on bank lending were highly unfavorable.  Second, still being majority owned by the taxpayers of the US, GM was restricted in its ability to fund any activity that didn't somehow create American jobs or shore up the US-side of its business.

And this is where SAIC came in.  Through this partnership, SAIC, with its stellar credit rating, not to mention being a major state-owned corporation with access to favorable loan terms from both state-owned mainland banks as well as Hong Kong banks, would be able to help GM out with its funding needs overseas.

The SAIC executive did suggest that GM and SAIC could have entered into an agreement whereby the two companies would create an entirely separate sales JV to which all vehicles manufactured would be sold.  Then SAIC would own 51 percent of the sales JV, also allowing it to consolidate revenue into the parent company's income statement.  (SAIC and its other major partner, Volkswagen have a similar arrangement.)

However, this particular arrangement didn't work for GM either as, once again, GM's government minders in Washington were not interested in entering into any arrangements that didn't serve the interests of the US.

Fast-forward a couple of years, and now GM wants its one percent back.  The only way I can see this happening is if GM were to agree to set up the sales organization that SAIC had first proposed, which may be possible now that the US government is no longer a majority owner in GM (though still technically the controlling owner).

Of course, since the time of that transaction, GM has been very vocal about the importance of the China market to the company's future.  In fact, GM now sells more vehicles in China than in the US (2.6 million vehicles in China vs 2.5 million in US in 2011.)

One wonders how eager SAIC will be to give up the majority control it has enjoyed for more than two years.  Furthermore, given the importance of its China JV, GM can probably expect to pay considerably more than $85 million for the return of its one percent.

Ford Says Thailand Floods Prevented Asia Unit From Making Profit

Ford Motor Co. said floods in Thailand caused a 2011 loss for its Asia Pacific and Africa region, preventing the automaker from achieving its goal to be profitable in all its global business units.

“The impact of the Thai floods is a bit bigger than we anticipated,” Ford Chief Financial Officer Lewis Booth told analysts yesterday in a presentation at the Detroit auto show. “We guided in the third quarter that all business units would be profitable for the full year. We now think that’s no longer possible because of the impact of the Thai floods.”

Tuesday, January 10, 2012

Bosch sells low-tech brakes ops to buyout firm

(Reuters) - Robert Bosch GmbH ROBG.UL, the world's largest car parts maker, is to sell what remains of its low-tech brakes business to KPS Capital Partners, a U.S. buyout firm which one source familiar with the deal said paid around 200 million euros.
Bosch, like other global players in the auto parts markets, wants to focus on more profitable high-tech components, leaving production of more mainstream parts to rivals with a lower cost base.

Thursday, January 5, 2012

Tsunami and flood make disastrous year for car sales

NATURAL disasters took the wind out of last year's vehicle market and robbed it of a potential record after tens of thousands of sales were lost, the industry said yesterday.

Australia broke the million mark for only the fourth time last year -- with 1,008,437 vehicles sold -- but the total was 2.6 per cent down on 2010 and more than 40,000 below forecast.

The earthquake and tsunami in Japan and floods in Thailand combined to choke supply while devastated communities from Queensland to Western Australia put a lid on demand, the Federal Chamber of Automotive Industries said, in what was an unprecedented year of "uncertainty and instability".

Wednesday, January 4, 2012

Nadzmi reveals his plans for Proton

Interesting interview with Proton Holdings Bhd chairman Datuk Mohd Nadzmi Mohd Salleh on his plan of action for Proton, if he were to get the stake from Khazanah Nasional.

Suzuki to Spend Nearly $800 Million to Boost Engine, Automobile Output In Indonesia

Suzuki Motor Corp. (7269.TO) said Wednesday it will build a new engine factory in Indonesia as part of a Y60 billion ($779 million) expansion to increase output of small, four-wheeled vehicles in the fast-growing Southeast Asian market.

"Suzuki Motor Corp plans to invest nearly $800 million to expand its automobile production facilities in Indonesia over the next two years," Soebronto Laras, the president of Jakarta-based PT Suzuki Indomobil Motor, told the Wall Street Journal.

End of the Road for Foreign Automakers in China?

Last week a story emerged that China's industrial planner, the National Development and Reform Commission (NDRC), has announced that it will stop supporting foreign investment in its auto industry. (News stories may be found here, here and here.)

This bit from a China Daily article explains a little about why these restrictions were being put in place:
China...has removed industries from the list of those it encourages foreign companies to invest in. No longer part of that group are automakers, large coal-to-chemical operations and manufacturers of polycrystalline silicon.

"The restrictions generally apply to industries that have excessively large capacities and that pollute the environment," said Zhang Xiaoji, senior researcher at State Council's development research center. (emphasis added)
My take on this story is that the NDRC actually has no real intention of restricting foreign investment in its auto industry. To understand why this is so, one needs only a limited understanding of the history of foreign involvement in China's auto sector, which I lay out in an op-ed in today's Asian Wall Street Journal.

In short, I make the claim that:
... the NDRC's announcement is more about improving Chinese leverage in negotiations with foreign automakers so Chinese automakers can more quickly overcome their innovation deficit.
For the rest of the op-ed at the WSJ site, click here.

And for all of the stories behind the main story of business-government relations in China's auto sector, my book, Designated Drivers: How China Plans to Dominate the Global Auto Industry, will be published by Wiley and Sons this year.

Coming to a bookstore, mailbox or e-reader near you in Spring 2012. Stay tuned!

I was just notified that my article was also picked up by WSJ's US op-ed page. It will run in Thursday's edition. (January 5)

Tuesday, January 3, 2012

China 'to withdraw' foreign car investment support

Is this a Chance for Thailand??

China has said it will withdraw support for foreign investment in the country's car industry to encourage domestic carmakers, according to state media.
The Xinhua news agency cited a joint announcement from the Ministry of Commerce and the National Reform and Development Commission.
The report did not provide details of what support was being withdrawn.
Some of the world's largest carmakers, including America's General Motors and Germany's Volkswagen, operate in China.

Ford to Unveil SUV in India

Ford Motor Co. will unveil a new, compact sport-utility vehicle in New Delhi, India, this week that is designed to help the auto maker carve bigger inroads in one of the fastest growing auto markets in the world.

The small utility vehicle, called the EcoSport, will be built on the same underpinnings as the auto maker's subcompact Ford Fiesta and likely will be sold first in Asia and South America. Pricing and availability of the vehicle have not been disclosed.

Monday, January 2, 2012

Perodua confident of retaining position in Malaysia

PETALING JAYA: Perusahaan Otomobil Kedua Sdn Bhd (Perodua) managing director Datuk Aminar Rashid Salleh expects total industry volume in the automotive sector to grow between 2.5% and 3% this year.

“This belief is supported by two main factors. The first is the Government's efforts to spur economic growth and the second is the launch of new models by various players.

“We believe that the automotive sector would benefit from these investments as historically the total industry volume sales trend has always tracked the country's economic performance,” he told StarBiz.

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad had predicted that vehicle sales for 2011 would reach 605,000 units.

Top seller: The 1.5-litre Myvi SE beside Aminar Rashid