Thanks to Detroit, China Is Poised to Lead
http://www.nytimes.com/2006/03/12/business/yourmoney/12ford.html?_r=1&oref=slogin
By KEITH BRADSHER
Published: March 12, 2006
CHONGQING, China
Soaring Sales, Hot Competition
VOLKSWAGEN and other carmakers used to prosper by sending outdated factory equipment to China to produce older models no longer salable in the West. But competition has become so fierce here that Honda is about to introduce its latest version of the Civic only several months after it went on sale in Europe, Japan and the United States. Toyota, meanwhile, is assembling its Prius gasoline-electric sedan only in Japan and China.
When Ford Motor opened its first production line here in western China just three years ago, it used a layout copied from a Ford factory in the Philippines to produce 20,000 sedans a year based on a small car design taken from Ford operations in India.
But this winter, Ford opened a second production line next door that is practically identical to one of its most advanced factories, the Saarlouis operation in southwestern Germany. The new line produces the Focus, the same small car it builds in Germany (but different from the Focus sold in the United States). And with continuing improvements to the first line, it will bring total capacity here to 200,000 cars a year by June.
The Chinese managers here are not even satisfied with that. “I want to learn from Germany and then improve on it,” said Li Jianping, the factory’s vice director of manufacturing.
Ford’s success in rapidly expanding the scale and sophistication of its Chongqing operations illustrates how quickly the overall auto industry is expanding and modernizing in China. One requirement for a country to become an automobile exporter is to develop a highly competitive domestic market that demands excellent quality and efficiency, and China has managed to create just such a market.
American and European carmakers, including Ford, General Motors, DaimlerChrysler and Volkswagen, as well as Toyota, Honda and Nissan of Japan are introducing their best technology to their plants in China, and not only to compete against one another. They also face rapidly growing competition in the Chinese market from purely local companies like Geely, Chery and Lifan.
These indigenous Chinese automakers captured 28.7 percent of the market in January, the first time in many years that Chinese brands have been pre-eminent — ahead of brands from Japan (27.8 percent), Europe (19 percent), the United States (14 percent) and South Korea (10.3 percent), according to Automotive Resources Asia, a consulting firm in Shanghai.
The multinationals “really have to bring their latest models,” said Yale Zhang, an analyst in the Shanghai office of CSM Worldwide, an auto consulting company based in the Detroit suburbs. “Even average consumers understand if this is not the latest model.”
Multinational joint ventures in China produced a total of 2.3 million family vehicles last year.
In the race to be No. 1 in China, the world’s fastest-growing car market, multinationals from the United States, Japan and Europe are falling over one another to share their latest designs, technology and manufacturing expertise with Chinese partners. But industry experts say that the sharing has helped China prepare to become a major car exporter within four years, increasing the pressure on G.M., Ford and other industry giants, which are already losing sales and market share to foreign rivals.
Few auto executives now doubt that the successful Chinese companies that emerge from the free-for-all in their home country will be ready to tackle world markets. “I’ve seen the Chinese vehicles in China from various, various brands, and I’ve said it’s a threat that will come to the U.S., I think, by the end of the decade,” said Thomas W. LaSorda, Chrysler’s chief executive.
All of the multinationals rapidly expanding in China say that their main goal lies in serving the Chinese market and not in exports. Still, Honda is already exporting small cars from China to Europe, while DaimlerChrysler is negotiating to build very small cars in China for sale in the United States, probably under the Dodge brand.
Until the last few years, China’s main advantages in the global auto manufacturing market were in its cheap labor and its talent for copying older Western designs, often while avoiding licensing fees, a practice that cut research and development costs to almost nothing.
Wages of less than $200 a month remain a big advantage for China, but it is developing another. Domestic and foreign automakers are starting with clean slates to build new operations, using efficient approaches and advanced management methods. It is similar to the way German and Japanese companies built new and more efficient factories starting in the 1980’s, mostly in the American South, helping them to leap beyond Detroit’s expertise.
G.M. and its local partner, the Shanghai Automotive Industry Corporation, built an extensive vehicle design and engineering studio in Shanghai that has just finished a redesign of the Buick LaCrosse for the Chinese market.
Soaring Sales, Hot Competition In the central city of Wuhan, Honda has just finished quadrupling the capacity of its joint-venture factory with the Dongfeng Motor Group, to 120,000 cars a year. It is also starting to build the Civic there. The expansion, costing $350 million, took just a year, half as long as a comparable expansion in the United States.
Perhaps most tellingly, on Dec. 15 Toyota began assembling Prius hybrids in the northern city of Changchun. The world’s multinationals had long been leery of transferring proprietary technology to make hybrid gasoline-electric engines in China, for fear that it would be copied. While Toyota is still cautious, China is nonetheless the only place besides Japan where Toyota is assembling the Prius, arguably its most important car in a decade.
Furthermore, Volkswagen said in September that it would jointly develop a hybrid minivan for the Chinese market with Shanghai Automotive — a project that is likely to give the Chinese automaker a significant understanding of the technology.
THE risk for the multinationals is that their inventions may be turned against them. When G.M. followed Volkswagen into the Chinese market in the mid-1990’s, it was assigned the same partner: Shanghai Automotive, which announced plans on Feb. 23 to begin assembling and selling its own brand of cars in China while retaining the joint ventures. Other Chinese partners of multinationals are expected to follow suit in the next several years.
G.M., Ford, Volkswagen and other multinationals continue to work with Chinese partners because the government here requires them to do so. Foreign companies must assemble cars in 50-50 joint ventures with local partners. Honda alone has a 60 percent stake in a factory: a plant in Guangzhou that makes cars only for export.
Chinese automakers are also buying modern technology and design themselves. Chery has hired some of the best-known Italian auto design firms to spruce up its cars. When the MG Rover Group of Britain entered bankruptcy proceedings last year, the Nanjing Automobile Group outbid Shanghai Automotive to take control of Rover and its fairly modern engine-producing subsidiary, Powertrain Ltd., and move it to China.
The Lifan Group, a car and motorcycle maker with headquarters several miles from the Ford plant here, is bidding to buy one of the world’s most advanced engine factories, a joint venture of DaimlerChrysler and BMW in southern Brazil.
But running efficient factories can often be even more important than buying the latest, most expensive robots. The Hafei Group, an automaker in Harbin in northern China, discovered this when it installed expensive European and Japanese automated equipment four years ago, only to find that its disorderly factory layout was less efficient and less flexible than its aging factory next door, where workers used hammers and other hand tools in smoky air.
Inventory control is another matter. Many Chinese auto factories keep extensive, costly stockpiles of parts on hand, whereas new Western-designed factories, including the engine operation in southern Brazil, are designed to receive frequent but small shipments from suppliers. Chinese manufacturers are now learning from their Western partners how to operate with this just-in-time delivery of parts.
The best way to appreciate how car manufacturing in China has changed is to look at the Ford factory here, a 50-50 joint venture with the Chongqing Chang’an Automobile Company. The first production line was supposed to be simple, relying heavily on manual labor and producing a sturdy Fiesta sedan of older design. Teams of local managers and workers were sent to the Philippines and India to learn the craft.
But the second line now includes robots to weld the stiff bodies of the Focus sedans for a more precise ride. Another robot applies the adhesive that holds the windshield in place, as in Germany. One small difference is that a robot guides the windshield into place in Germany, while people do so here, said Mr. Li, whom Ford sent to Germany for four weeks to study the system there.
Wang Cheng-guo, a strapping 23-year-old with a two-year degree in computer hardware from a technical college, started working at the Ford factory in 2004. Each day, he had to strain to lift 50-pound seats by hand into sedans on the first production line here.
Mr. Wang said that with five eight-hour days a week and pay that has now reached nearly $200 a month, the job nonetheless looked good to him when compared with his father’s job at a nearby Chang’an car factory. His father, 48, has worked from 7 a.m. until 11 p.m. at that factory, with few vacations, for almost 30 years. While his father still pushes racks of parts to the assembly line, the son earns more, even with a much shorter schedule.
“When I was young, I rarely saw him,” said Mr. Wang, who with his first Ford paycheck bought his mother a thick green winter coat and took his parents to a traditional spicy dinner of Chongqing hot pot.
Three months after Mr. Wang joined the factory, Ford improved the first production line by installing an electrical boom to help him swing the seats into the cars. When he concluded that the boom made a time-consuming pivot in the wrong direction and asked that it swing into the car from a different angle, local managers soon made the change — an adjustment that might have languished for months in more bureaucratic factories in other countries.
Mr. Wang, recently engaged, is now making all sorts of plans, the kind that millions of Chinese want to make as prices fall and technology improves. “I want to get married,” he said, “and get a car someday.”
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