Financial News

  • 15 January 2014, 15:19

China's Car Manufacturing Market Cruises Ahead

The boss of Mercedes-Benz in China has told Sky News that survival in the automotive industry is based largely on success in China.

Hubertus Troska, chairman and CEO of Daimler Greater China, the parent company of Mercedes, was speaking to Sky News from the wheel of a Mercedes E-Class built not in Germany, but in China.

"You look back 30 years, you couldn't own a car," Mr Troska says. "It was all bicycles and now you look at the city of Beijing - it is so fascinating; China is absolutely unbelievable."

Mercedes-Benz is sold as a brand and a badge synonymous with safety, reliability and quality. China, historically at least, is known for none of those qualities.

And yet, in 2008, Mercedes made an historic decision to manufacture some of its cars in Beijing. Last month it chose China for the company's first engine plant outside Germany.

"[It] really is the biggest automotive market in the world, so all car companies in the world would like to be in China and want a strong position in China," he explains.

"There is no doubt, this is already today the greatest and biggest market in the world and it is the fastest growing market as well."

Mercedes' continued expansion into China follows moves made by Volkswagen, Audi, Fiat, BMW and more. It speaks volumes for the importance of the Chinese market.

It also illustrates just how far China has come because in so many sectors it is no longer the sweatshop factory floor of the world. It has transformed into a first-world player with much to offer.

"This is the size of 19 football pitches!" Dr Markus Keicher boasts as we enter one of the vast buildings which makes up Mercedes' vast factory complex in the south of the Chinese capital.

It has taken months to persuade the company to let Sky News have a peak inside. It takes about an hour's journey through the thick Beijing traffic to reach it.

Dr Keicher is the general manager of Mercedes Powertrain Engines and this building, Mercedes' new Chinese engine plant, is his kingdom.

The sprawling complex is so large, a golf buggy is provided to show us around. Everything around us looks state-of-the-art.

German-branded robotic arms, attached to the ceiling, whoosh from one zone to another.

Workers, almost all Chinese, man their stations and with the help of a few robots build their engines.

"The workers are all trained in Germany," Dr Keicher tells us. "They are trained to the highest standard."

His colleague then interrupts: "We give them the full German experience; we try to get them to the beer festival while they are over [training in Germany]!"

Mercedes-Benz is one of countless German brands, not limited to the automotive industry, who have been plugged into China, and are reaping the financial rewards for many years.

Germany's manufacture-based economy gives it a clear advantage in the export market. However, many German companies have taken their China operations to another level; they now build their products in China, for China.

The domestic consumer base in China is growing larger and more wealthy. It is increasingly becoming the key to financial growth for brands like Mercedes.

Placing their factories in China reflects a complete confidence in Chinese workmanship, but it also proves the company believes local manufacturing is the key to winning the Chinese market.

Britain's Jaguar Land Rover, now Indian-owned, is in the process of building a factory outside Shanghai; a move it hopes will help build on its remarkable success in the Chinese market.

It insists the decision represents an expansion, not a shift in production from their West Midlands plant.

To operate in China, foreign companies must establish joint ventures with Chinese counterparts. The result, for Mercedes, was the Beijing Benz Automotive Company (BBAC).

The president and CEO of BBAC is a German called Frank Deiss. The next two managerial levels are both Chinese positions.

"We are growing here extremely fast," he says. "If you have a look outside, much construction is going on," he tells me as we watch a Chinese-made C-Class roll off the production line.

"Currently we have a capacity of around 140,000 units [cars] a year but as you can see, the capacity is increasing," he adds.

BBAC currently makes three models of Mercedes in China: the C-Class, a specially designed long, wheel-base E-Class, and the GLK SUV 4x4.

They are identical to their German cousins in every way except the Chinese writing on the back.

For now, the Chinese Mercedes' are sold only in China. But other foreign firms with Chinese factories are considering selling their cars abroad.

Volvo Chief Executive Hakan Samuelsson said recently that his Chinese-made cars could soon be on sale in the West.

"No one cares if Volvos come from ...Ghent in Belgium, or Sweden ... Nationalities are for football," he says.

In 2012, approximately 50% of Mercedes-Benz cars sold in China were built in China. They hope this will increase to three quarters in a year or so.

The engine plant has a current capacity of 250,000 per year. Again, we're told, this will increase.

In October 2013, global sales for Daimler, the parent company of Mercedes-Benz, Smart and BBAC, were up 15%.

In China, their October sales were up 9.1% with 17,348 vehicles shifted in the month.

The figures from other German car manufacturers with an even bigger footprint in China underline importance of local investment and local production.

Audi car sales in China rose a staggering 32% to 407,738 in 2012. BMW's sales increased 41% over the same period.

"We fully recognise the overall company success, of Mercedes worldwide, is dependent to a good extent to our success in China," Daimler CEO Hubertus Troska says.

"So we want to become even more successful in China, contributing to the overall success of the company."

After being asked why it makes sense to build locally, Mr Troska says: "As we want to grow in this market, we have to become more local.

"And therefore we put a lot of manufacturing into this country now. We are investing heavily - two billion alone in the next two years - to expand our capacity to build local vehicles so that we can better cater for the local needs of our customers here in China."

But what about safety? Are their Chinese-made cars really as safe and reliable as the German-made ones? Of course, he tells me, no question.

"We are Mercedes-Benz, so we build to Mercedes-Benz standards and the vehicles we produce in China are exactly the same high quality than in Germany or any other plant," he insists.

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