American cars are struggling in China and it may only get tougher.
U.S. automakers.
Shares of Chinese auto market have fallen and companies have scrambled to
shore up their businesses in the largest car market in the world.
One firm that is especially seen its share of troubles is Ford.
Its rival, General Motors, is the second largest in sales in China behind
German giant Volkswagen.
A late arrival, a less than ideal partnership and difficulty keeping up
with the rapid pace of the fast growing and a highly competitive Chinese
market have all left Ford in the dust behind its larger rivals.
But the blue oval seems determined to succeed.
The company said earlier in 2019 it has a plan to catch up to its
competitors and to be fair to Ford, things are now tough for everyone in
China. Intense competition, the rise of Chinese brands in a slowing market
mean the good days for foreign automakers may have come to an end, even as
Chinese companies plant stakes in the United States.
In the later decades of the 20th century, China began opening up its
domestic automotive market to foreign companies on the condition that they
form fifty-fifty partnerships with Chinese firms.
Up to that point, domestic companies had ruled the Chinese market and they
tended to focus on commercial trucks.
But there were a few foreign manufacturers who sold cars in the country in
low volumes. Toyota, for example, had begun marketing its Crown sedan in
1964.
One of the first international companies to establish a meaningful
business in China was the German company Volkswagen.
The company signed an assembly contract in 1982 with the Shanghai
Automobile and Tractor Company, at that time, the largest Chinese vehicle
manufacturer. Around the same time French brand Peugeot and American brand
Jeep also set up joint venture partnerships in China.
Other similar agreements came later.
But with the exception of the Jeep partnership, Japanese and European
automakers tended to dominate among foreign brands working in China.
The biggest American player in China is General Motors, which won a battle
with its arch rival Ford, over a partnership with China's Shanghai
Automotive Industry Corporation in the mid 1990s.
GM has been partnered with the firm.
Ever since Ford later joined together with Changan another state owned
Chinese manufacturer.
And that relationship has been considered a source of strain for Ford in
the country. GM At one point I thought they were late to the game, but
they caught up very quickly.
Volkswagen was was in really early and became a very
well known foreign nameplate really fast and then GM caught up with them
basically. GM and Volkswagen have been the market leaders for quite some
time. Ford was late to the party.
Ford came in and to be frank about it, their joint venture partner,
Changan, was not quite at the level of the joint venture partners that
Volkswagen and GM had in terms of sophistication and government power and
influence and things like that.
And so Ford had some disadvantages out of the gate.
In addition, Ford and its partner have had difficulty in the past keeping
up with the rapidly changing new car market.
Fashions change enormously.
One year, some model of Volkswagen will be the one that everyone wants.
And then the next year it'll be a Buick that everyone wants.
And to some extent it's regional, but it's also very quickly changing.
The Chinese auto market is super competitive.
China is far and away the most crowded market in the world with cash.
More than 80 brands vying for market share.
That's all of your global brands from Europe, Korea, Japan, United States.
In addition to dozens of Chinese brands so, to get your brand to stand out
really takes a lot of hard work.
Volkswagen is the largest automotive presence in China but GM is number
two and it has a far larger presence in the country than its smaller
American rival. Whereas Ford sold roughly 750 2000 cars in China in 2018,
GM sold more than 3.6
million. Ford's share of the Chinese market has not cracked more than 5
percent since 2008, and the company has actually lost shares since 2015
from a high of 4.7
percent of the market to 2.9
percent in 2018.
GM also lost shares since 2015, but still had a much larger 13.8
percent share of the market in 2018.
Aside from the benefit of a solid head start, GM also enjoys some rather
unlikely prestige in China.
Its Buick brand long and often stereotyped back home as an old fashioned
purveyor of sedans and wagons for grandparents is in China considered an
elite, almost premium brand.
Buick was the first American brand GM introduced in China when it
partnered with SAIC, in large part due to the pedigree the brand had in
the country. Buick has a long history in China.
It was the car that ferried famous Chinese figures such as Sun Yat-sen,
commonly regarded as one of the founding fathers of modern China, and Zhou
Enlai, the first Premier of the People's Republic of China.
To be fair to Ford, it hasn't been terribly easy for any of the three
Detroit automakers in China in recent months as slowing economic growth
has dented consumer demand.
Things really began to slow in 2015 and automakers for the first time
needed to discount their prices in order to stimulate growth.
Then by 2018, even discounting wasn't doing the trick and we started to
see actual declines in demand for the first time in memory.
I mean, you'd have to go back to the early 90s to find a time when the
market was not roaring back with declining.
And that's where we are right now on the 16th straight month of declines.
In the first eight months of 2019, U.S.
automakers share of Chinese passenger vehicle sales fell to 9.5
percent from 10.7
percent during the same period of 2018, according to data from the China
Association of Automobile Manufacturers.
During that same time, German carmakers share rose to 23.8
percent from 21.6
and Japanese automakers rose to 21.7
percent from 18.3
percent. A global trade war has also created headaches for companies and
fed risk aversion among Chinese consumers, according to industry watchers.
President Donald Trump has lashed out at GM on Twitter about its Chinese
manufacturing footprint.
The automaker cited the trade war as a potential risk to its business in
China in its 2018 annual report.
The trade dispute has affected Ford's business as well.
The automaker has said the trade war has raised the costs of its vehicles
in China and led the companies to cancel plans to import its Focus
crossover from China to the U.S..
There are reasons to be optimistic about the future of foreign automakers
in the country. China is lifting certain restrictions on foreign companies
that could give them more control over their operations in the country and
a greater share of the cash they make.
BMW became the first automaker to buy out a majority share of its JV
partnership, BMW Brilliance.
Tesla has also managed to set up shop in China without any JV arrangement
at all, something many people who watch the industry consider astounding.
Decoupling from a Chinese partner could mean a higher share of profits.
But it remains to be seen how easy such a situation will be to manage,
though joint ventures have been required by law.
Chinese auto industry watchers say they also serve a practical purpose.
Government is so heavily involved in business in China that having a
partnership with a state owned company smooths out processes that could
otherwise be unmanageable for a foreign operator trying to go it alone.
While sales have slowed in recent months, there are still millions of
untapped Chinese customers out there.
One potential for tremendous growth is China's electric vehicle market,
which the government has been keen to promote both for the sake of
reducing China's tremendous pollution problem and for the purpose of
turning Chinese business into a global leader in electric vehicle
technology. Electric vehicles have changed the game because they are,
by all accounts, much simpler to produce the drive.
Trains are very simple and electric vehicle.
You have a lot of startups in the electric vehicle business that haven't
been in the vehicle business before.
They're funded by the equivalent of a Facebook or an Amazon in China.
Somebody with a lot of money, with a lot of high tech expertise and no
tradition of producing vehicles whatsoever.
And they have entered the electric vehicle business in twenty eighteen.
About 95 percent of the domestic electric vehicle market was controlled by
Chinese makers, but importers are beginning to introduce some of their own
vehicles. Ford and Jangling Motors jointly developed the Ford Territory
Battery Electric Vehicle.
Ford's first BEV in China, which launched in summer 2019.
Apart from that, Ford made some big moves in 2018 and 2019 to improve its
business in the country.
The automaker spun its China business out of its Asia Pacific operations
into a standalone entity and it appointed Anning Chen, president of the
Ford China Group.
In April, the company launched its Ford China 2.0
initiative, which aims to give the automaker's business a shot in the arm.
Ford kicked off that move with an announcement that it will launch more
than 30 new Ford and Lincoln vehicles over the next three years.
All of which will be tailored to Chinese consumers.
More than 10 of them will be electrics or hybrids.
Tailoring product to the market involves making changes that seem as
subtle as changing the face of a vehicle for debuted its escape titanium
for the Chinese market in April.
Ford sells the Escape in a titanium trim in the U.S.,
too, but the company put a different face on its Chinese version to appeal
to Chinese customers.
At the time, Ford's vice president of global design said Chinese buyers
prefer designs that are understated, yet powerful.
Ford is also working on a China specific version of its Sync infotainment
system with artificial intelligence technology from Chinese tech giant
Baidu. The company created a center that will design vehicles suited to
Chinese tastes and an innovation center that will develop mobility
services and other products for the Chinese market.
The company is also starting to leverage China as a product research and
development hub. The automaker's Chinese partner, Changan Ford, will
design and develop the next generation Ford Escort.
And recently, all three Detroit automakers also displayed pickup trucks, a
Detroit staple at a Shanghai trade show in early November 2019.
Pickups are considered an extremely important product for U.S.
automakers. All three firms take great pride in their truck lineups and
compete fiercely with one another, especially in their home market of
North America. Pickups are also a category in China that have been
resistant to the recent slump in auto sales.
Of course, in China, American firms do not have the home field advantage
they have when selling trucks in the U.S.,
including customers reputed to be stubbornly patriotic and a long standing
25 percent tariff on all imported pickups.
Long term survival is not only essential to American automakers in China,
but in the United States as well.
There are already well over 100 Chinese companies setting up some kind of
research operation in the United States as Chinese carmakers become more
skilled at competing in their own market.
They're going to begin looking for places around the world to unload all
of the cars they are now capable of making.