Tightly coupled: Europe’s and China’s automotive markets

Munich-based Roland Berger Strategy Consultants have just finished an analysis on the outlook for the Chinese automotive supplier market. The question »How long will the party last?« is more relevant

 for us than it sounds, since almost 20% of total revenues at European car suppliers depend on the Chinese market development.

 The global revenues of European automotive suppliers are almost back at pre-crisis levels but almost 20% of supplier revenues in Europe now depend on how the market in China develops. After a decade of strong growth, the Chinese market for passenger cars will exceed 11 million units in 2010. According to the Roland Berger analysis, private vehicle sales in China will exceed 18 million units by 2015, but growth rates will decline substantially. The major drivers of future private vehicle market development are rapid GDP growth and rising disposable income. Although China's economy is still expected to grow considerably over the next few years, it will be faced with several significant challenges such as currency appreciation, unsustainable stimulus plans, tighter monetary policy, unemployment and rising labour costs. There are three main areas of focus for Western automotive suppliers: accurate volume planning, the impact of localization and revisited business models.

 (Marcus Berret; source: Roland Berger)

»Approximately 18% of the total revenues of a typical European supplier depend on how the market develops in China,« says Roland Berger Partner Marcus Berret.

 (Dr. Marcus Hoffmann; courtesy of Roland Berger)

»China's private vehicle market experienced strong growth of 35% p.a. from 2001 to 2007, mainly driven by booming sales of private cars. The private vehicle market then slowed down in 2008 due to the global economic crisis,« states Roland Berger expert Marcus Hoffmann.

»Thanks to the government stimulus plan to boost automotive sales, growth of around 50% was achieved in 2009.«

Furthermore, market shares by vehicle segment, OEM brand and country of origin remained relatively constant during the period 2005 to 2009.

»Generally speaking, China's economy is still expected to experience attractive growth in the next few years, despite some significant upcoming challenges, such as currency appreciation, which will reduce China's exports, the unsustainable government stimulus package, tighter monetary policy, unemployment and high labour costs,« states Berret. »Despite these challenges, the overall Chinese economy is still fundamentally stable. According to our analysis, however, sustained economic growth is likely in China, though at a slower pace than in previous years.«

The consultants see three key consequences for Western auto suppliers. First of all, car suppliers will have to plan volumes very cautiously in 2011 and base them on scenarios, as growth rates will be significantly lower in the next few years and therefore sales in China will not necessarily prop up the suppliers' business in 2011. Second, OEMs are shifting more and more production capacity directly to China, with strong pressure from OEMs to localize parts. Localization rates tend to increase by 3-5% annually. As a result, delivery volumes in Europe are under pressure. Hence, Western auto suppliers have to carefully study the potential impact of a further increase in localized parts supply. Finally, increasing labour costs and rising exchange rates make parts exports from China less attractive.

»Moreover, there is continued improvement in skills and R&D capacity in China and thus we can see a trend toward higher value-added activities,« states Hoffmann.

Berret concludes: »Western auto suppliers need to urgently revisit their current business model for Chinese operations in order to retain their market positions in China.«

Comments

[easy auto]

It is surprising that in some poor countries there is a huge demand for good quality European cars. Although there are tax challenges there are many people who are happy to pay the additional taxes enforced on these cars.

[Used cars online]

Hi,I must admit that today is my first time I visit here.However,I have found so many interesting in your blog,specially how you determine the topic.I really like it.Keep up the good work.This is very Good article, Totally a unique one to know.so this car every one should try it at least once in a life.sir,If you saw today's condition,poor countries are move rapidly towards success.his economy growth is very good as compare to our country,so don't think small to any body.hank You

http://www.usedmotordeals.com/

[Easycardonation]

The emerging Asian auto market is vital to the success of the Big 3. GM, Ford and Chrysler all know they need to be competitive in price, quality and style. With the companies becoming leaner in these recession days...they are in the best position they have been in for years.

http://www.cardonationontario.ca

[car finance]

Come to think of it, we don't really know how big of a grasp China has over the automobile industry, but the eastern giant probably provides a lot of the cars and car parts we see today.

[auto finance]

"The emerging Asian auto market is vital to the success of the Big 3." I agree. The Big 3 is going to grow stale if Asian manufacturers don't enter the scene to show the rest of the world what they're doing out there in the east.

[used car loans]

"The global revenues of European automotive suppliers are almost back at pre-crisis levels" Somehow, I find this hard to believe. Europe has always been at the forefront of the automobile industry. I guess the U.S. debt crisis has something to do with this.