The Global Automotive Forum 2014 was held in Wuhan, China October 16-17. This was the fifth annual convening of the event by the China Council for the Promotion of International Trade (CCPIT), the last two of which have been held in Wuhan. The official title of the program was "The Vision for the Transformation of China's Automotive Industry," and the theme was centered on the path of the Chinese automotive industry to true globalization. The three of us had the opportunity to attend with representatives from the Michigan automotive community, and wanted to share some observations including how they might impact the industry here and in China.

One focus of the conference was on accelerating the path to "going global" through mergers and acquisitions. A couple of the panels focused on this subject, both at an OEM and supplier level. One panel noted the important guidance and support provided to Chinese companies looking to go outbound in the [Overseas Market Regulation] issued in August 2014 by the Ministry of Commerce, and the streamlined process for obtaining "certificates of outbound investment" as part of that process. Mr. Chen Lin of the Ministry of Commerce encouraged companies considering M&A to:

  1. Be practical and have a clear vision and strategy suitable to the company (walk before you run)
  2. Have a clear view of the financing needs for the business both in China and overseas and the need for capital reserves, and
  3. Make strong efforts in cross-cultural integration.

Mr. Ellis Chu, Director of China M&A at Bank of America Merrill Lynch, identified the current period as evidencing the "most intent" he has ever seen for automotive companies wanting to go outbound.

Another loud and clear theme of the conference focused on branding. Several panelists brought a branding and design perspective to their comments. They noted that all successful automotive brands bring attributes and cues with them, that reinforce and establish the "brand promise" they connote. For example, the brand promise for Dodge is performance; for Mercedes it is engineering quality. What is the "brand promise" of the Chinese nameplates? It is too early to tell but if one were generated now it would likely be linked to "low cost" with dubious or unknown quality characteristics, it was noted. Chinese companies were encouraged to create "signature elements" in their branding according to Mr. Silvio Angori, CEO of the Pininfarina Group in Italy, to produce a brand identity that reinforces a quality image.

Also discussed at the confence was the status of the Chinese automotive supply community. While it was acknowledged that a quality and capability gap exists between Chinese and N.A. suppliers (in some cases which may be as much as 10 years), it was acknowledged that the gap is narrowing and is smaller (or non-existent) in some components vs. others. All speakers discussed their intentions and commitment to become more localized in their China supply and to build more capability in the China supply base, and be true "Chinese" companies vs. the "China operation" of an overseas auto supplier. Mr. Edouard de Pirey, Valeo China President, summarized: "you need to be Chinese in China." How do Chinese suppliers close the gap faster? Mr. Jay Kunkel, President of Asia-Pacific at Lear Corporation, offered the following advice to Chinese suppliers:

  1. Become part of a global engineering network
  2. Engage in M&A including technology acquisitions
  3. Build management depth and
  4. Develop quicker decision-making processes.

A final theme from the conference was "New Energy" vehicles and the progression of the Chinese automotive industry on that front. This panel included the Mr. Wang Chuanfu, Chairman of BYD China, who encouraged people to think about alternative energy vehicles not just as a way to battle the growing air quality challenges in Chinese cities and to comply with emissions requirements, but more as a way to combat energy supply "shortages."

All in all, we were warmly received by our hosts [see inset], and we have no doubt that the Chinese automotive industry will continue on its march to globalization, even if the current path has more economic uncertainty than a couple years ago. The groundwork will be laid; it may take a while for the exact path to become clear. When one looks at the Korean government's automotive focus and the resultant creation of the global juggernaut Hyundai/Kia, it is natural to consider the many strengths of the Chinese automotive industry and economy, and its government resolve, and expect that China will create one or more truly global automotive brands in the future. The trickier questions are who, how and when?

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