Andrew Bell, Ron Johnston and Kelvyn Jones [email protected]
Automotive Industry in China General Motors Andrew Marx Andrew Johnston
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Transcript of Automotive Industry in China General Motors Andrew Marx Andrew Johnston
Automotive Industry in ChinaGeneral Motors
Andrew Marx Andrew Johnston
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember
Vision of General Motors
"GM’s vision is to be the world leader in transportation products and related services. We will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork, and innovationof GM people."
Company Introduction
• One of the world's largest automakers was founded in 1908. • Global headquarters in Detroit• 208,000 employees in 157 countries and produces cars and trucks in 31
countries• GM Brands: Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden,
Jiefang(FAW), Opel, Vauxhall and Wuling(SGMW). • Vehicles Manufactured Locally through Shanghai GM (JV with SAIC)• The Shanghai GM plant December 15 1998 (Buick first)• JV with SAIC and Wuling (microvans and 34 percent owned by GM)• In August 2009 JV with FAW to produce LDCV, and produces Jiefang• GM increased its sales in China by 68 percent to 230,048 vehicles in March
2010, outsold its U.S. sales of 188,546 by 22 percent. • GM Research and Technology Centre in Shanghai with SAIC, Green
innovation• The last emperor of China owned a Buick (Strong Brand Recognition)
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember
Why JV as Entry Strategy?
• Required by Government
• GM Shanghai formed through JV with SAIC in 1997
• SAIC Motor Corp. Ltd. is the largest listed vehicle company in the Chinese A-share stock market.
• The main business SAIC include R&D, production and sales of vehicles (including passenger and
commercial vehicles) and components closely related with vehicle development (including power-
trains, chassis, electronics and electric parts)
• SAIC player in automotive finance business
• In 2009, SAIC Motor sold more than 2.72 million vehicles, continuing its leading position among major
automotive groups in China. GM sold 1 001 360.
• JV makes good business sense (Cultural divide, access to market, technology sharing and innovation)
• Very successful due to mutually beneficial relationship NB!
Recent Developments
• General Motors (GM) SAIC announced a joint powertrain development program. Small displacement (1.0-1.5-liter) engines and a matching dual-clutch automatic transmission
• Splitting development costs • Produce an engine/tranny combination that is 20 percent more
efficient • The new powerplants will be both direct injected and
turbocharged to create a 10 percent boost in fuel economy• Partnership builds on long history of innovation and collaboration • Small displacement gasoline engine family targets heart of market
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember
Top 10 Competitors in China
Manufacturer Sales1. General Motors 1001360
2. Shanghai VW 876 180
3. Chery 605 260
4. BYD 601 500
5. Beijing Hyundai 541 430
6. FAW VW 526 660
7. Dongfeng Nissan 494 090
8. FAW Toyota 453 280
9. Geely 390 630
10. Guangqi Honda 379 450
17%
15%
10%
10%
9%9%
8%
8%
7% 6%
General MotorsShanghai VWCheryBYDBeijing HyundaiFAW VWDongfeng NissanFAW TOGeelyGuangoi Honda
Sales in ‘09 in China
In 2010 GM has sold 1,976,913 units, selling 200 000 units in the month of October alone
Market Information7%
6%4%
4%
4%
4%
4%3%
3%3%
57%
1. Shanghai GM 2. Shanghai VW 3. Chery 4. BYD 5. Beijing Hyundai 6. FAW VW 7. Dongfeng Nissan 8. FAW Toyota 9. Geely 10. Guangqi Honda Other 42
41%
27%
21%
6%
5%
Small CarsBasic' CarsMid-Size SedansMPV'sSUV's
Car Type model Mix
Market Share
2009 GM Owned 46% share of Small cars
Products in the Chinese Market
JV with FAW: Jiefang
The Jiefang brand from FAW-GM, GM’s light commercial vehicle joint venture, is showing its newest product
Strategic Differentiation
Suppliers
• Suppliers of Vital importance (Quality and Cost)• Relationships are key• Conflicting Interests• JV comes in handy (SAIC produces parts, and well
connected in industry)• Quality and low cost parts result in cheaper better cars• Proximity is key (lower distribution costs)• Reliable• Low bargaining Power
Research & Product
Design
Manufactu-ring of Parts
Assembling &
Operations
Supply chain
mangage-ment
Marketing & Sales
Customer Service
Dealer & Supplier relations Management
Human Resources Management
Administration & Infrustructure (Accounting) Function
Internal Value Chain AnalysisProfit m
argin
FutureFuture
Profit margin
Primary Activities
Secondary Activities
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember
Key Success FactorsIndustry Success Factors Importance Rating GM’S Score Competitive
Advantage
Low Operating and Production Costs 8 8 MEDIUM
R&D 7 10 MEDIUM
Economies of Scale 10 7 MEDIUM
Guangxi - Employee relationships, satisfaction, retention, productivity
8 9 MEDIUM
Good Dealer Network 10 10 YES
Brand Recognition and Reputation 8 8 MEDIUM
Fuel efficiency 10 10 MEDIUM
Understanding Customer needs 10 10 YES
Broad Product Range 6 10 YES
Quality and Reliability 10 10 MEDIUM
Partnerships and JV’s 10 10 YES
Understanding of Local Culture 10 10 YES
Understanding regulatory and legal environment 10 10 YES
Global Reach and Experience 5 10 YES
Clear Focus and Strategy 10 10 YES
Reliable Suppliers 10 10 YES
GM Key Success FactorsJV
• Four popular models from GM’s Shanghai GM and SAIC-GM-Wuling joint ventures finished in the top three of their respective segments in the J.D. Power Asia Pacific 2010 China Initial Quality Study, which was published on October 29.Product Range
• The Chevrolet New Sail ranked second in the Premium Compact Segment.• The Chevrolet Spark ranked second in the Compact Segment.• The Wuling Sunshine ranked second in the Mini Van Segment.• The Buick LaCrosse ranked third in the Upper Premium Midsize Segment.
Strategy and Focus• “GM's performance demonstrates our capability to design and build best-
in-segment quality,” said Kevin Wale, President and Managing Director of the GM China Group. “This is part of our commitment to offer the highest level of value to our customers across China.”
Important Trends and Facts• Depleting Natural resources
• Increased environmental and alternative energy focus
• Strong competition on Innovation and quality (trying to outdo each other)
• “Copy and Improve”
• 2005 Market 10 million to grow to estimated 75 million in 2015
• Increased competition due to market size, everyone is going to want a bigger share
• Overall slow-down in vehicle sales
• Tax and subsidies for small vehicles to end resulting in sales increasing during December, and slowing during first quarter of
2011
• Rising oil prices, call for better fuel efficiency
• Growing Middle Class
• Expanding highway and road Network
• Small cars = 2/3 of total cars sold, GM = 46% share
• Vehicle Penetration = 5/1000
• In 2007 8.5 million Chinese people bought cars (5,5 mil were private, and 3 were for commercial purposes)
• 52 Carmakers in China, Government focus on Concentration (International companies 85% market share)
• Foreign companies (not china based) are buying parts from china increasingly
• SAIC bought $500 000 000 worth of shares in GM
• Growth of Vehicle Market 46% from 08-09 (due to poor sales in 2008 – recession)
• Population in China 1 330 141 295
Green
• Concerns about pollution and fossil fuels deepen• Centre for advanced auto research that will be part of a $250
million corporate campus GM is building in Shanghai.• Collaboration with SAIC, Government and academic institutions
about ways the country can reduce its reliance on fossil fuels• Chevrolet Volt (Best available electric vehicle)• With auto sales this year up about 25% over last year's pace,
the government and consumers increasingly are worried about environmental damage. And China is only at the early stages of its adoption of the automobile.
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember
Evolution of the Chinese Auto industry
• Before the communist party came to power in 1949 there had been eight years of war against Japan. Virtually no motor industry to speak of at the time.
• 1971 China rejoined the UN and fears of war began to subside• 1976 Chairman Mao died• 1978 at the at the Third Plenium of the Chinese Communist party, Deng
Xiaoping was endorsed as the de facto leader• 1979 opened up to the rest of the world, focus shifted from Politics to
Economics• 1994 selected automobile industry as one of the ‘pillar industries’ to drive the
national economy
Stage Description
1994 - 1996 ‘Foundation stage’ – vehicles need to be made with 60 – 80% local content
1997 - 2000 ‘ Attacking difficulties’ – target outputs, development of 3 large scale producers and basic R & D capabilities developed
2000 - 2010 ‘Rapidly Developing’ – Industry to be self sufficient and internationally competitive. Target output of 6 million vehicles by 2010
GM Growth
Company Life-Cycle CHINA
USA
Porters 5 forcesThreat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
Intensity of Rivalry among Competitors
Growth Industry Switching costs not very high
Buyers have many options
There are many substitutes
The price, quality, durability
Has reached economies of scale
Many Suppliers needed in production
Low switching cost for buyer if not satisfied
Public transport, walking and bike riding
Lack of differentiation in products
High capital needs for R&D and manufacturing Overheads
There are many separate components, thus can source from many suppliers
Buyers create the industries revenue, sales is predominant revenue stream
Dependant on your geographic location, in China public transport relatively good
Lots of innovation in the market, low cost is primary factor of differentiation
Access to Distribution Channel limited
Power lies primarily with the producer
52 producers with a total car unit sales of 13million
Bike culture is huge due to low cost and efficiency
Margins are low as big growth market, lots of opportunity
Key : High - Medium - Low
6 3 8 109
Geographic Distribution of Producers
Distribution of Local Suppliers
Purchasing Power of the customer
• Driven by the car price relative to the household disposable income and ability to finance or lease vehicles through financial service providers
• Growing incomes of China, especially the emerging urban middle class
• Far greater selection of vehicles in the market, stimulating interest and demand
• Trend towards smaller sedan type vehicles
Demographics• Population• 1,330,141,295 (July 2010 est.)• Age structure• 0-14 years: 19.8% (male 140,877,745/female 124,290,090)
15-64 years: 72.1% (male 495,724,889/female 469,182,087) 65 years and over: 8.1% (male 51,774,115/female 56,764,042) (2010 est.)
• Population growth rate• 0.494% (2010 est.)• Birth rate• 12.17 births/1,000 population (2010 est.)• Life expectancy at birth• total population: 74.51 years
male: 72.54 years female: 76.77 years (2010 est.)
SWOTStrength Weaknesses Opportunities Threats
General Motors today has manufacturing operations in 32 countries and its vehicles are sold in 192 countries
Loose sales and revenue in certain market places due to very differentiated market approach. Large range and offering
Exposure to both developing and developed Nations gives them volume and growth potential
Price wars in the market erode market share and revenues putting pressure on production and labour costs
JV with SAIC has been mutually beneficial and genuinely a win-win situation for both parties
60% of all sales are small vehicle sales with small margins, neglecting other high margin markets
Industry is in growing rapidly and are well established in the market
Lack of control of legislation and unpredictable changes by the Chinese Gov
Large operations worldwide encourage economies of scale and less cost per unit on R & D spend
Resource needs are so great that they must import all of their steel and other components
Opportunity to acquire smaller companies in the industry to increase their market share and economies of scale
New entrants into the market, it is growing rapidly and an attractive prospect for all vehicle companies world wide
Break down of Production costs of GM
Key : High - Medium - Low
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember
Challenges
• Tax and Subsidy Policy Changing• 60% of sales resulting from SMGW (Wuling)• Pending Price war (Many competitors and ever decreasing
prices, quality no more differentiating factor)• Broad Range of vehicles (may not be able to be competitive in
price war)• Meeting Demand (Balance growth)• Margin on small cars THIN!• Maintaining Sales Growth (55% higher in 2009 than 2008)• Aggressive expansion by competitors• Innovation theft
Intellectual Property
•The Gm Spark was released 6months later at a price of $1500 more than the Chery QQ•Due to more expensive assembling cost, higher price and later release the Chery QQ outsold the GM Spark by 6 – 1.•Incident was of particular interest as the JV partner of GM in China, SAIC, also hold a 20% stake in Chery•QQ filed a patent in China a year prior while GM never filled a patent for their design in China and therefore had no claim in court•Chery denied having copied the GM design, claiming they had developed the QQ independently “with a little inspiration from the GM Spark”•China's SAIC buys $500M in GM stock – 18th of November 2010
ContentsIntro & Background
Entry into China
Competitive View
KSF’s & Industry Trends
Chinese Market Features - Impact on GM
Challenges
What we want you to Remember