Sunday, 13 September 2015

A time to hold nerves and stay calm

As auto executives pay homage by attending Europe's top-class automotive event – this year's Frankfurt motor show, just starting – their minds will be on other matters.

For this will be a Frankfurt like no other; as minds constantly drift away…elsewhere.

Elsewhere being many thousands of miles away where European and North American automakers have much invested in the hope of unprecedented rewards. In both of these regions, the automotive industry is one of the engines driving the economy and the expectation is that such will be case in China.

In North America for example, earlier this year Ford Motor Company announced that its joint venture business, Changan Ford Automobile Co., would acquire for $1.08 billion the plant from Harbin Hafei Automobile Industry Group Co., a wholly owned subsidiary of China Changan Automobile Group, the parent of Ford’s partner, Chongqing Changan Automobile. The deal would increase its passenger-car capacity in China by 200,000 vehicles annually, but the companies said they had “no specific product plan” to announce at that time.

As to General Motors, China has been the automaker’s largest market since 2010, accounting for about one-third of its global sales. And senior executives expect China to remain the company’s largest market “well into the future”. Not so long ago, executives declared that GM has “an aggressive strategy for capitalizing on the abundant opportunities now and beyond 2020”. Much is at stake.

Data from China shows the country's growth in investment and factory output missed forecasts in August, pointing to a further cooling in the world's second largest economy.  The date raises the chance that third-quarter economic growth may dip below 7 per cent for the first time since the global crisis.

Growth in China's fixed-asset investment slowed to 10'9 per cent in the first eight months of 2015. This is the weakest pace in 15 years.

So evidence of a slowdown in China may be unnerving business leaders everywhere, and no more than in the front offices of medium--sized passenger cars and SUVs. BMW and Daimler, to name but two in particular, have made big investments In China. So too has JaguarLandRover.

But some executives will not have seen the likes before. One minute gearing to major onslaught into a mammoth market. The next minute thinking “Hey, hang a minute.”

Major component suppliers, machinery and equipment suppliers, and resource facilitators, like Ricardo, have put their money where their mouths are in following the paths trodden by the OEMs. Now they too are thinking “Hey, hang a minute.”

Will they, in the process, be lifting their foot off their business planning accelerator, or will they still have their eyes fixed on the long view?

The long view says China still has a strong 7 per cent growth target, far better than many European economies can manage. For while some consumers in China are cutting back, and some investment programmes may be stalling as the government appears (on the face of it) not to know quite where it is going, it seems there is still some appetite for quality foreign brands.

This may allow some European automakers to continue with their plans, but maybe at the same time taking a more steadying line by being ever more watchful of what is happening on the ground. BMW says it is pledged to introduce three models into China and Daimler has its sights set on hitting 200,000 a year at its biggest plant.

China is a huge influence in world trading and one that cannot be ignored. Investment plans for North America are less of a problem; everyone more or less speaks the same economic language. It is possible to leave plans in place, as BMW and Daimler no doubt will.

But no one can afford to walk away from China where the culture is quite different to that which automakers normally have to handle. When European and North American automakers sets their wheels in motion it usually means they are in business and with a commitment to carry plans through to the end.

But in China there is a nervous undercurrent that can be mystifying. So this time round, behind the gloss that is inevitably Frankfurt, China will remain the biggest test of nerves for executives who will earn every euro of their salary and bonus in the coming months and maybe even years until the sun begins to shine.

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