Global autos in China:4 themes from the road in China

Event

    Macquarie’s global auto team hosted its 5th annual Global Autos in China Tour the week of 19th May (being followed this week with the Indian Auto Tour).Visits with industry experts, OEMs, dealers and parts suppliers all provided a picture of a healthy and growing industry. We present our key conclusions from the week-long trip as well as write-ups on our in-depth meetings with Volkswagen (VW), Great Wall Motors (GWM), Changan and Guangzhou Auto (GAC).

    Demand outlook remains robust

    Meetings with industry experts from both CAAM and LMC Automotive Consulting reinforced our view that the China passenger vehicle (PV) market can grow at a low double-digit pace. Both experts highlighted China’s still low level of automobile penetration and expanding middle-class population as key drivers of volume growth, even as more cities consider restrictions on auto sales.

    Wide range of technology and automation in the plants

    We toured the assembly plants of GWM, Ford, local brand Lifan and GAC’s own brand Trumpchi. While GWM and Trumpchi showed plants not far off what one would expect in a developed market, the Lifan factory harked back to the days of hand-made cars. GWM noted that while automation is often more expensive than labour, the payback comes with enhanced quality.

    Premium autos support dealers even as some turn to preowned cars

    § We met with Zhengtong, Yongda and Lentuo International and visited several of their dealerships, including dealers for Ford, Jaguar-Land Rover (JLR) and pre-owned BMWs. Overall we came away comfortable that demand for premium brands especially is robust, and dealer profits are growing. Although the pre-owned market is small at roughly a quarter the new car market, both Yongda and Lentuo are putting in place dealers to meet demand from this growth market.

    Parts makers target both JVs and local brands

    We toured factories for Nexteer and Fuyao Glass, both of which supply both international and local brands. Both factories make some products in China for export. Nexteer in particular highlighted the growth opportunity with domestic brands, citing the role the adoption of its electronic steering system by Wuling is playing in efforts to improve fuel economy.

    Outlook

    China’s position as the world’s leading auto market makes it hard to succeed without a presence there. Our top picks among the Chinese OEMs remain Great Wall Motor, Dongfeng Motor and Brilliance China. Our top pick in Europe is Daimler, helped by a strong position in the Mercedes-Benz model cycle, which is helping it regain market share in China. In Korea we like Hyundai Motor and in India we prefer Tata Motors for the JLR business, both of which are seeing robust growth in China.