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Chinese a long way behind: Conomos

Slow progress: Australia's automotive envoy John Conomos says that indigenous Chinese car-makers are well off the pace compared with international rivals.

Former Toyota boss says Chinese car-makers are not ready to go global, yet

21 Jul 2015

FORMER Toyota Australia executive chairman John Conomos believes Chinese-made cars will not have a significant impact on the Australian market for some time, but this could change down the track under joint-venture agreements with large foreign car-makers.

Addressing a meeting of dealers at the Victorian Automobile Chamber of Commerce (VACC) in his role as an Australian automotive industry envoy last week, Mr Conomos was examining the forces that would have an impact on dealerships over the next few years.

The majority of Chinese manufacturers did not fit into that timetable, he said.

“They are thirsty, they are hungry and they have huge money to spend on research and development but, frankly, they don’t know how to do it in the world of car manufacturing,” Mr Conomos said.

In his role as Australia’s automotive envoy, Mr Conomos said he had travelled to a number of emerging markets in Asia, including China, India, Indonesia and Thailand.

He said that with the rapidly developing Chinese domestic market, sales growth in that country had been exponential for some years.

“But when you go and visit any of the 110 or so local indigenous auto manufacturers you see one thing: they have no technology.”

 center imageLeft: Australia's automotive envoy John Conomos.This is starting to change, however, with companies such as Great Wall-owned SUV-maker Haval signing up European design talent in a similar manner to the South Korean manufacturers in years past.

While some Chinese manufacturers are importing Western talent, others have bought struggling European brands, as is the case with Geely and Volvo, which will share platforms for future models.

Mr Conomos said it is the long-established joint ventures between Chinese manufacturers and Western companies that are doing much better than the indigenous Chinese manufacturers because they have access to technology, although he added that the Western companies were still keen to protect their intellectual property.

“The car companies that have gone into JVs are succeeding because they take with them the black box. They don’t transfer the knowledge to the Chinese manufacturers.”

Mr Conomos said this helped him in his quest to “sell” Australian know-how from the CSIRO and Australian universities.

The Australian delegations are considered neutral, according to Mr Conomos, and the Australian industry is in decline ahead of the three remaining vehicle manufacturers closing their operations by late 2017.

“They do not have know-how. They want it,” he said of the indigenous Chinese manufacturers. “They are sick of being given a drawing and asked please make this item for $10 cheaper. They want the Western companies to teach them how to do it.”

Mr Conomos was appointed envoy in 2009, shortly after the federal Labor government appointed former Victorian premier Steve Bracks to head an inquiry into the ongoing viability of the local car industry in 2008, which was when China’s industry was just starting to accelerate.

Mr Conomos said he visited many manufacturers in China at the time, including Geely, Great Wall and BYD when they were setting up greenfield sites.

“Two years later and there were high-rise buildings with 6000 engineers in each of those car companies. In BYD’s case, there were 13,000 engineers trying to build a car,” he said. “(Yet) they cannot do it.”

He said the Chinese automotive industry was doing a better job of producing light-commercial vehicles as they do not need the same degree of technology, and production volumes were generally lower.

“Chinese products are failing as indigenous products, worldwide,” he said.

“The only ones that will succeed are the BMWs or Hondas or Suzukis that have got into that market and produced cars under their structures and which satisfy their domestic Chinese needs.

“Five or six years on, after proving the technology is okay, will they begin to export. Hence there is a long way to go because the Chinese are really not there yet.”

Mr Conomos compared the industry policies across other Asian countries, noting that in India the emphasis was on joint ventures, with Indian companies looking for partners that could offer a unique “widget” that would give an advantage over the competition.

In Thailand, he said the emphasis is on foreign-owned operations satisfying the developing domestic market and building exports into ASEAN, in particular, at the same time.

As part of its automotive and climate change policies, the central government in China dictated that the indigenous manufacturers would build 500,000 pure-electric vehicles. It even fitted public recharging infrastructure in 21 ‘megacities’ with a population of more than three million.

“The encouragement was quite interesting. In order to drive the consumer demand – Chinese buyers like many others were wary of battery cars – the government offered incentives,” Mr Conomos said.

“The central government will give you €4000 ($A5876) and the provincial government will match it.

“So the buyer would receive €8000 ($A11,750) offset to buy a battery car because they are so intent on trying to change the market dynamic around electric cars.

“But it’s not working. No-one is buying battery production cars. In droves.

“In fact, I think EVs are still less than one per cent of world production.”

Mr Conomos’ conclusion was that any new influence or impact on Australian dealers from the emerging automotive industries in Asia was still “a little way off”.

“You’ll buy Chinese cars, I do believe, or hire cars, based on big brands,” he said.

“They will produce them more cheaply in Asia, economically, and send them to countries like Australia, which has a great appetite for higher-tech cars at lower cost.”

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