DETROIT -- Foreign automakers face increasing competitive challenges in China, but its rapid growth makes the effort worthwhile, a veteran manufacturing expert says.
Despite the current slowdown, sales of cars and trucks in China likely will surpass total U.S. sales in three or four years, Marcus Chao, president of Lean Enterprise China, said today at the Automotive News World Congress.
Including heavy trucks, 2008 vehicle sales in China grew less than 10 percent to 9 million, including 5.6 million passenger vehicles. Car sales have soared from a base of 650,000 in 2000, Chao said.
But that rapid growth will moderate in the future to roughly parallel Chinas overall economic growth rate -- perhaps 7 or 8 percent, he said.
That will make it more difficult for foreign-domestic joint ventures to prosper in the upper end of the car market, which they dominate, Chao said. He expects domestic Chinese manufacturers to continue to control both heavy trucks and the low end of the car sector.
China is a unique market, Chao said. There are no similar business models in other markets.
The Chinese government manipulates the auto market to help manage the countrys rapid growth, he said. Both the federal and local governments have paternalistic attitudes toward local automakers -- the governments often have equity stakes. The governments want domestics to succeed at the expense of foreign manufacturers, Chao said.
The Chinese cultures thirst for power -- a preference to be No. 1 in a small operation rather than No. 2 in a large outfit -- will slow consolidation among automakers and suppliers, he said.
Chao sees operational challenges in the near term, compounded by a predicted sales decline in 2009. The Chinese yuan is appreciating against Western currencies; operating costs are higher, with big increases in labor, materials and logistics; and more capacity is not being used. In a 9 million-vehicle market this year, Chao estimates capacity conservatively at 11 or 12 million, with joint venture capacity use at 75 to 80 percent.
Chao founded the nonprofit Lean Enterprise China in 2005 to promote lean manufacturing. He sees the lean approach as a solution to rising operating costs.
But balancing the obstacles in the Chinese auto market are long-term growth and Chinese consumers strong affinity for quality and the status of foreign brands, he said. Rising personal income is making cars affordable for more Chinese, who crave the prestige of a car but seek value for their money.
It is a big deal to own a car in China, Chao said. Thats why they insist on appearance, quality and handling.