West is best for growth in China sales, output Go back »
2013-04-29 | Southwest China
CHONGQING, China -- When Changan Ford Automobile Co. wanted to build an engine and a transmission plant next to each other, the local government here literally moved a small mountain to make it happen.
This sprawling municipality is as hilly as San Francisco. So the Chongqing North Development Authority marshaled an army of bulldozers, backhoes and giant dump trucks to do some serious earth moving.
"There was a 90-meter pitch from top to bottom. They took the mountain and pushed it down into the valley," says Gary Johnson, Ford Motor Co. vice president of manufacturing operations for Asia-Pacific and Africa, shaking his head in amazement as he recalls the massive scale of the eight-month project. "Unbelievable."
If it takes moving mountains to move into markets such as Chongqing, so be it. Automakers, urged on by China's national and local governments, are eager to expand in the markets of central and western China.
After a decade and a half of soaring car sales in the wealthy eastern provinces along China's coast, growth in China has slowed to a single-digit rate. Future growth will be in the hinterland, auto executives interviewed during this month's Shanghai auto show agreed.
The government has long urged automakers to go west, in hopes of fueling economic development in those largely rural regions. Now automakers are taking that admonishment to heart for their own reasons.
"The government is steering everyone to go west. That works well for us," said David Schoch, Ford executive vice president of Asia Pacific.
Consider Chongqing, located at the convergence of rail lines and highways in central China. "In Chongqing, all transportation systems come together," said Ford CEO Alan Mulally. "It's such a gateway."
Chongqing (chong-CHING') is about the same distance from Shanghai as Des Moines, Iowa, is from New York. It's also home to more people -- 5 million in the city proper -- than Los Angeles. But in China, it's generally agreed that a city needs a minimum of 10 million people to qualify as a so-called Tier 1 city, such as Shanghai, Beijing or Guangzhou. Chongqing's size marks it as just a Tier 3 city.
The 400,000-unit Chongqing engine plant starts production this summer. By the time the transmission plant opens in 2014, Ford will operate five plants here with its Chinese partner, including three assembly plants with capacity to build 767,000 vehicles per year. It will be Ford's largest manufacturing complex outside its southeast Michigan base.
Ford isn't the only carmaker looking west in China these days. China's dominant foreign players, Volkswagen and General Motors, have embarked on western strategies. Chrysler Group, Volvo, Nissan and Suzuki are building plants in western cities. Automakers are also adding dealerships in the region as fast as they can.
30 Million
Analysts have forecast China's light-vehicle sales at 30 million units in 2020, up from 19.1 million last year and larger than the 2012 U.S. and European markets combined. By 2020, western China's share of total sales is expected to rise to 26 percent, up from 18 percent in 2011, predicts IHS Automotive. The prosperous coastal region's market share will decline to 43 percent, from 60 percent.
"The coastal region will still have the highest passenger vehicle sales by volume, but its market share will be down significantly," wrote Lin Huaibin, IHS Automotive's sales forecast manager in China.
Two years ago Volkswagen unveiled its "Go West" strategy, a key part of its plan to spend $12.75 billion through 2015 to expand production in China.
In March, VW said it was building five more assembly plants and two component plants in China. Three of the assembly plants and both component plants start production this year. The expansion will allow Volkswagen to boost annual production in China to 4 million units by 2018, up from 2.6 million today.
VW already has an assembly plant in the western city of Chengdu, which also is home to a plant run by Toyota Motor Corp. and China's FAW Group. This year VW will add a plant in Urumqi, in Inner Mongolia, north of Tibet.
GM plans to build four assembly plants in China by 2015. GM China chief Bob Socia said the plants would boost GM's China production by 30 percent, to 5 million units.
GM didn't say where the new plants will go. Until now, the automaker has relied on its manufacturing hub in Liuzhou, where a GM joint venture produces inexpensive Wuling-brand microvans, to spearhead its push west. With a starting price of $5,000, the Wuling Sunshine microvan was China's top-selling light vehicle last year with sales of 524,000 units, LMC Automotive data show.
