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CEIBS Holds 10th Annual China Automotive Industry Forum 2012

- Fiat CEO & Ford Global VP Among Speakers

SHANGHAI, Oct. 28, 2012 /PRNewswire/ -- The challenges facing the global automotive industry, including overcapacity, increasing R&D costs, and pressure to achieve technological advances in safety, energy consumption and emissions, were analysed today during the 10th Annual China Automotive Industry Forum 2012, held at the Shanghai campus of the China Europe International Business School (CEIBS). Leaders from the political, academic and business communities shared their expertise at the event, hosted by CEIBS and the European Automobile Manufacturers Association (ACEA).

As he moderated during the welcome addresses CEIBS Vice President & Co-Dean Zhang Weijiong thanked the sponsors and other industry players for their effort in making the day's forum a success. He also pointed out that CEIBS has hosted the auto forum for the past decade, a point reinforced with a video that presented highlights from the event over the years.

In his opening speech, CEIBS Executive President Zhu Xiaoming spoke of the technological advances being made in the industry, sharing a video that focused on efforts being made to recharge electric cars as they are being driven along the highway.

The second opening address was delivered by Vice Secretary of the Party Committee and Governor of Jiading District in Shanghai Mr. Ma Chunlei. He spoke of how significantly Jiading has benefited from the auto industry over the years (total assets of 280B RMB) and steps being taken to ensure the sector's sustainable development. Efforts are being made, he explained, to build a complete supply industry chain with a focus on manufacturing, especially OEM. Research and development, he added, will also be an area of emphasis with another 200 R&D centres soon to be added to the existing 55 set up by various companies. Jiading has also found other ways in which to incorporate the auto industry into locals' lives: it has made a name for itself as the annual venue for the popular F1 race and has now added a music festival (hosted yesterday) to its list of activities. In terms of the human resources and technological advances needed to ensure that the industry continues to thrive, Ma spoke of the need to nurture the talent needed (the government will invest 300M RMB in this) and cited new energy as the future of Jiading's auto sector. He closed by saying he looked forward to hearing the insight of speakers during today's event.

China and the Reshaping of the Global Automotive Industry

In the opening session, which focused on China and the Reshaping of the Global Automotive Industry, leading auto executives assessed and discussed the mega trends that affect their companies and the role of China in the industry's global restructuring process. They explored, in particular, the consolidation trends, the impact of new technologies and the role of government. Following keynote speeches by CEO of FIAT S.p.A. Sergio Marchionne, Research Fellow in China's Sate Council's Development Research Centre Prof. Chen Qingtai and President of DAF Trucks N.V. Harrie Schippers, CEIBS Professor of Operations Management Prof. Nikos Tsikriktsis then moderated a panel discussion with all three.

In a no-holds barred address, Fiat's Marchionne spoke of the urgent need for Europe to develop and implement a coordinated approach for the continent's auto industry in order to safeguard the 11.6M jobs it provides. Auto companies, he said, had "all suffered our own version of hell" during the 2008 global economic crisis. He made it clear that he did not share the view that the crisis had caused the fallout in the auto sector, stressing instead that the economic upheaval had simply exposed the global industry's operational inefficiencies – a major part of which was overcapacity.

While the US government had used the crisis as an opportunity to work with the American auto industry to make the sector stronger, their Europeans had squandered this opportunity, Marchionne said. "Today, the US auto industry has the flexibility to adapt and it is equally capable of surviving a downturn. This is not true of Europe," he pointed out. Europe's political leaders, he said, need to find the courage to take the action needed to formulate a coordinated approach for their auto industry – as they did for the steel industry in the 1990s.

Turning his attention to the issue of how technological innovation can help the sector, the Fiat CEO spoke of the need to reduce dependence on fuel, adding that the solution will require the input of true visionaries. He all but dismissed electricity as a viable alternative, saying electric cars are "loss makers" and manufacturing them on a large scale would be "masochism in the extreme". "For the time being, there is no market (for electric cars) and even 10 years from now they will only be 5% of the total car market," Marchionne said. He also referenced a study that showed electric cars may do more harm than good. There is a need, he said, for more research. "We should explore the issue, but we should not be strong-armed by regulators. We should focus on improving existing technology, especially natural gas," he urged the room full of auto industry players.

The session's next speaker, Prof. Chen Qingtai, shared his thoughts on how to nurture China's auto market and ensure its sustainable development. His points included the positive and negative effects the auto industry has had on the Chinese society, and the need for the government's role to evolve as the industry changes.  

The session closed with a panel discussion after an address from DAF Trucks N.V. Harrie Schippers. He spoke about the gains being made in terms of global consolidation, from the perspective of commercial vehicles. He emphasised the need for global industry standards, making the point that there are shared global concerns and customers have similar needs across the world. He stressed, however, that he was not calling for a one-size-fits-all approach as he was fully aware that – within the globally accepted standards – there has to be allowance made for variations within the industry's commercial niche.

The Role of Government in Reshaping the Industry 

In session two, The Role of Government in Reshaping the Industry, the speakers were Dong Yang, Executive Vice Chairman and Secretary General of CAAM; Ivo Belet, Member of the European Parliament; Vice President of Chang'an Automobile Co Ltd Mr. Ma Jun, as well as Group Vice President and President of Ford Asia Pacific and Africa Joe Hinrichs. They were also all participants during a panel discussion hosted by Ivan Hodac, Secretary General of ACEA. 

In his presentation, Dong Yang spoke of the need for a national development strategy for China's auto industry. Now that the industry is the largest in terms of output and sales, he said, it was time for it to become the strongest. In his wide-ranging speech, the central theme was the importance of the auto industry (it generates billions in taxes and employs millions and thus has a major impact on China's GDP) and the importance of having a clear roadmap. He does not anticipate that rising fuel prices will curb auto sales in China, adding that car owners will simply drive less. At the same time, domestic auto makers should also look to the overseas markets as potential buyers, he added, stressing that opening up the local industry and globalisation of successful home-grown brands are vital for the sector's survival. So too, he added, is the government's role in safeguarding the industry's role as a significant plank in overall national development. 

The session's next presenter was European Parliamentarian Ivo Belet who spoke of the significant role that the auto industry plays in the EU, providing 2.3 million direct jobs and another 10 million ones indirectly plus accounting for 21% of global car sales. The EU had reacted to the 2008 crisis with an economic recovery plan that included incentives for energy efficient cars, to replace older versions, he said. He agreed, however, with Fiat's CEO, that excess supply was a problem. "Overcapacity and lower demand forced manufacturers to re-evaluate production all over Europe," he said. The focus in Europe now, he added, is on clean cars, sustainable transport, and sustainability of the industry as a whole. Other important topics: safety standards for carbon dioxide emissions, tyres and bio fuels. Under the Cars 21 project (a collaboration among high-level industry players, employees and EU commissioners) efforts are being made to establish a framework for the industry. In fact on November 8, he added, the EU Commission will unveil its Cars 2020 Action Plan for Europe's auto industry. This, he said, would play an integral role in providing a roadmap and the coordinated approach which the Fiat CEO maintained was now desperately lacking.

Chang'an Vice President Ma Jun, the session's penultimate speaker, shared his views on opportunities and challenges for China in the global consolidation process. Of the 150 new models launched in China last year, half were launched by domestic brands he said as he spoke of China's ability to effectively compete with international players who are already operating in the country. "China will become the new force in the global auto market," he said, adding that going global is essential. "The power of the market will determine our future and our actions will also decide the final result of the competition. As long as we rely on technological innovation and take advantage of the opportunities available we will be able to grow China's auto sector," he said.

Ford's Group VP Joe Hinrichs next shared his views on how the US government has collaborated with the country's auto sector, especially during and after the 2008 crisis. Valuable insight had been learned from the economic debacle, he said, and China could benefit by paying attention to these lessons. He outlined the recipe that had transformed Ford, GM and Chrysler into once-again profitable companies after the dark period during the crisis. The US government

  • developed stable, transparent and predictable policies for the sector;
  • restructured the industry to address the issue of overcapacity (a problem now seen in Europe), which involved rationalization of brands (in contrast there is a proliferation of brands in China now)
  • gave consumers an opportunity to provide their input.

"These were all part of the solution," he said.

The Global Consumer

Session three, The Global Consumer, explored whether consumers are defined by location or whether they are converging toward a "global median", demanding the same types of products, quality levels and service regardless of location. Honorary Editor of China Automotive Review and China Business Update Wayne Xing, CEO of Berge Group Fernando D'Ornellas Silva, and Senior Director of TNS Automotive China Guillaume Saint shared their knowledge with the audience.

In his speech, "Global Consumer Trends", Dr. Xing reflected on transforming the concept of "Made in China" to "Made Better in China." The trends in global auto sales and consumer service that he outlined included: rapid urbanisation, mixing of best practices from the East and West, globally known brands, cars that are made for China, India, and the emerging economies, cars as a status symbol, and more reliance on social media for marketing.

Dr. Xing introduced some of the unique characteristics of the overall Chinese marketplace. Chinese companies are becoming greener and are embracing the Internet, he said, and are using popular platforms like Weibo to build their brand image. He also pointed to consumer trends in group buying, and increased use of mobile phone technology and apps for shopping, socialising, and working. Meanwhile, Chinese consumer taste pushes for bigger, taller buildings and skyscrapers, which are built impressively quickly, said Dr. Xing. Chinese consumers increasingly demand luxury, and the new buildings often cater to this demand.

In terms of the automobile market in China, Dr. Xing noted that in China, many cars are bought for government use, although individual buyers are largely in their 20s and 30s, and two thirds are first-time buyers. This may change in the future, he added, because the used car market is still very small in China. 

Fernando D'Ornellas Silva, CEO of Berge Group then analysed "Chinese Brands: An Approach to Latin America."

Latin America is changing quickly, with better monetary policies and financial reforms, explained Mr. D'Ornellas Silva. Many trade agreements have been signed, and the region has emerged strongly from the financial crisis: Latin America is expanding at an expected rate of 3.4 percent compared to 1.4 in the developed West, he said, adding that Brazil, China, Argentina, and Chile are the largest exporters to China, while Peru has the highest market share for Chinese cars.

Customer behaviour in these markets is different than in Europe and America, Mr. D'Ornellas Silva pointed out. Latin American consumers are more open minded and pragmatic, and are willing to consider Chinese brands as a viable option. Chinese brands are becoming popular, though effective branding in the Latin American market is a work in progress for Chinese auto makers. However, the visibility of Chinese brands has improved and current owners are generally satisfied with their purchase, noted Mr. D'Ornellas Silva.

He suggested that Chinese brands focus on improving quality, reducing emissions, and making their products more efficient and environmentally friendly.

In concluding, Mr. D'Ornellas Silva asserted that "Latin America has been an important test ground for Chinese brands… what happens in the region is of extreme importance and will enable Chinese brands to learn and to expand business to other countries."

Guillaume Saint, Senior Director of TNS Automotive China, spoke next, focusing on "Trends Among Car Consumers." Automobile demand in China has been influenced by an increase in disposable income, said Mr. Saint, explaining that the post-eighties generation are important buyers, and that now more women are joining the market for new cars.

The post-eighties generation is characterised by a greater desire for individualism, inner gratification, and trendiness, he asserted. He explained that for this group, cars must fulfil the obvious practical requirements, but beyond this, a car must show off the owner's lifestyle and status. In China, he said, the exterior of a car is more critical than it is in the West, with the front of the car being especially important – it should show power and balance.  In terms of the interior of a car, Chinese consumers focus on spaciousness, related Mr. Saint.  He explained that the comfort of the passenger is paramount, particularly in vehicles used for business. Another preference that is unique to China concerns the front seats and dashboard of a car, where more buttons and gadgets are favoured. Mr. Saint described a study in which German drivers were found to be happy with fewer buttons, while Chinese drivers preferred more, since buttons and gadgets add a sense of high-technology and luxury. Light colours also prevail for the interiors of passenger vehicles, Mr. Saint said.

A panel discussion moderated by CEIBS Professor of Operations Management and Director of the CEIBS Centre for Automotive Research Thomas Callarman then began. Joining the speakers for the panel was Wang Guorong, who is Dean of the Shanghai Dongchang Development Institute, and also Research Fellow at the Shanghai Academy of Social Sciences. Mr. Wang spoke about his organisation's important research report, which forecasted the growth of the market. 2001-2011 was the first golden age of China's auto market, said Mr. Wang, adding that he and his colleagues foresee 2020 as another turning point in the market – the aim is to produce 40 million units by then.

The panel discussion and audience questions covered topics such as the globalisation of consumer demand, the SUV market, and first car buyers. 

In the day's closing session, Dr. Young-Sup Joo, the Managing Director of Korea's Office of Strategic R&D Planning for Core Industries of Ministry of Knowledge Economy, and Prof. Ouyang Minggao, Director of the State Key Laboratory of Automotive Safety and Energy at Tsinghua University spoke about "The Technologies of the Future."

Dr. Young's speech focused on the "Future Technology Direction of the Korean and Global Automotive Industry."  The industry is in transition, and we can expect major changes in the global automobile landscape, he argued, particularly in the areas of green technology, smart innovation (as with embedded intelligence and electronics, and synthesising of ICT), and convergence and integration (the creation of new value and the expansion of the auto industry with new business models).

In talking about green innovation, Dr. Young detailed four options for green cars, describing their pros and cons: HEV, clean diesel, EV/PHEV, FCEV. "New business models and government support are crucial" for the success of these technologies, he said, asserting that private-public partnerships should be expanded and that industry and government should cooperate more. He added that the key to success for smart cars are new features and functionalities, core technologies, complexity management, and new business models.  Dr. Young also encouraged those in the industry to work more with infotainment ecosystems, focusing on wired/wireless carriers, apps, and other high-tech systems.

Prof. Ouyang Minggao then spoke, giving an "Outline of the Progress of China's R&D on Energy-Saving and New Energy Vehicles".  From 2001, China had worked on major developmental projects, Mr. Ouyang noted. He went on to describe China's focus on R&D for environmentally friendly vehicles' key components and parts. The lithium battery has shown marked improvement, power systems have been further developed, battery recharge stations have been established, and prototypes for alternative fuels are being examined, he recounted.

Prof. Ouyang spoke of the problems and challenges China still faces, the key problem being a lack of advanced technology. The country still lacks core technology, he said, and thus has room to improve. Other issues: certain components must be imported from abroad, and the infrastructure to support electric cars is still undeveloped. Though the industry is lagging, Prof. Ouyang expressed optimism in Chinese companies' ability to make great strides in the future.

President of InterChina Consulting and Member of CEIBS Board of Directors Jan Borgonjon then moderated the panel discussion and the audience question and answer session. Topics covered included green innovation, collaboration between green auto manufacturers and ordinary car makers, the outlook for the use of bio fuels, car software, and the innovation culture.

SOURCE China Europe International Business School

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