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 / Winter 2011 / Issue 65(originally published by Booz & Company)


China’s Auto Industry Responds to Record Growth

Dazong Wang, CEO of one of China’s largest automakers, discusses how auto companies will keep pace with Chinese consumers’ appetite for cars.

Since Dazong Wang took over as president and CEO of the state-owned Beijing Automotive Industry Holding Company (BAIC) in 2008, the automaker’s profits have increased 700 percent and annual production has more than doubled, to 1.5 million vehicles. By 2015, the company plans to manufacture 3.5 million to 4 million cars per year — 5 percent of which will be electric vehicles. Despite the fact that in April and May 2011, auto sales in China declined for the first time in more than two years, the overall trend in sales is still growth. Sales in China are forecast to top 20 million this year, compared to just 13 million in the United States, and Wang is positioning the company to meet this demand. BAIC is also starting to introduce vehicles under its own brand for the first time: A microvan, the Weiwang, launched in March 2011. In late 2009, BAIC bought some of Saab’s technologies from General Motors and used them to design its own high-end vehicles that will roll out by the end of 2011.

Wang started his career with GM in Detroit in 1985 after receiving his Ph.D. in engineering from Cornell University. He returned to his native China in the 1990s to run GM’s subsidiary, Delphi, then came back to the U.S. and GM before returning home in 2006 to serve as vice president at GM’s joint-venture partner Shanghai Automotive — and subsequently going on to head its archrival, BAIC. This global experience will be put to use as BAIC seeks partnerships at home and abroad (it already has joint ventures with Daimler AG and Hyundai) to continue to expand its capabilities and know-how. This form of innovation — buying up old technology around the world, modernizing it, and adapting it to the Chinese market — is important, Wang believes. But even more important is business model innovation, in which automakers share resources and ideas to improve the auto industry as a whole.

On the margins of a conference organized by the Committee of 100 (a nonprofit focusing on U.S.-China relations) in New York in May, Wang spoke with strategy+business about the trends that will define China’s auto industry and what Chinese automakers need to do to capture the opportunities.

S+B: What do you see as the key trends that characterize China’s auto industry today?
I see five. The first is consolidation. We still have too many automakers in China. The government has identified the country’s top eight auto companies and it is encouraging them to consolidate the industry through M&A. [More than 100 automakers are currently operating in the country.] Last year, BAIC and other companies made acquisitions in different parts of the country. This is going to accelerate. But this consolidation is not forced; it’s not government matchmaking. It’s based on each company’s own initiative.

The second trend is Chinese domestic brands further increasing market share and improving their quality. Right now they have around 30 to 35 percent market share. Recently a J.D. Power and Associates study suggested that there is a gap [between domestic and foreign brands] when it comes to quality, but also noted that this gap will decrease pretty rapidly, and will be eliminated sometime between 2015 and 2018. The domestic brands have always had a cost or price advantage, so if you further increase the quality, you should see their market share increase. If the price is low and the car is good, people will buy it.

The third trend is the rise of new-energy vehicles. This is an important part of our product plan, so we have set up a new-energy vehicle division. Last year we sold 1,300 electric vehicles, mostly buses and light-duty delivery trucks. This year we will extend that to eight electric vehicle models, including passenger cars. We now have 50 electric taxis operating in Beijing. Our goal is that 5 percent of our vehicles sales will be electric vehicles by 2015, or around 150,000 annually. Overall, you will see more and more of these types of vehicles.

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