Another Fulcrum

Brian Hicks

Updated February 15, 2006

I remember riding in the front seat of a car in China and noting the nameplates of the cars in front of me, wondering, "Will names like Dongfeng ever roll off the tongues of American consumers?"

Last month, I wrote about the Chinese auto industry on the heels of the Detroit Auto Show and the premiere of a few promising makes and models from the Middle Kingdom.

As I predicted, the Detroit debut foreshadowed a momentum shift in the Chinese auto industry.

You see, the official Xinhua news agency just reported that in 2005, China’s auto exports surpassed imports for the first time. Evidently someone is getting the hang of making Chinese brands sound sexy.

Outbound car shipments outstripped inbound ones by 11,000, their value jumped by a whopping 158% year on year, and units sold increased by 120%.

But China isn’t just increasing production of the same old vans and sedans foreign markets have already seen (though by some accounts the styles China focuses on are pretty passé).

Hyper Hybrids

China is setting itself up for a boom in the most crucial automotive breakthrough of the new century – hybrid technology.

Currently, there are 10 hybrid car models being marketed in the United States. These range in price from $19,000 to about $53,000, with the majority below 30 grand.

By 2010, it is estimated that there will be 50 hybrid models to choose from in domestic showrooms, and somewhere north of 600,000 hybrids will have been sold in the U.S. Toyota plans a hybrid version of each car it makes, meaning that hybrids will be literally as wide-ranging in style as traditional cars.

High resale value, low maintenance difficulty (when properly learned), and ever-increasing government tax incentives are piling up demand for hybrids like Toyota’s Prius as Hollywood stars and conscious consumers of all stripes choose to mitigate their individual reliance on volatile petroleum prices.

But China needn’t rely on Yankees to motivate their markets. Chinese government initiatives dating back to 1986’s "863 Program" have listed hybrid auto production as a key goal of Chinese auto development.

Just as George W. Bush’s admonition to the nation to explore alternative energy practices sparked a surge in stock prices and overall interest in renewable energy, China’s Renewable Energy Law and current Five-Year Plan place heavy emphasis on creating clean air and environs for the Beijing Olympics and Shanghai World Expo.

Dongfeng, Chang’an, Chery, and China FAW are all Chinese auto manufacturers who are thrilled to see a lengthy research process result in the prospect of Chinese hybrid cars by the end of 2006.

But the market is not limited to consumers – the city of Wuhan has 20 hybrid buses in service, with more vehicles and cities surely to join them.

The development of mass transit based on cleaner, renewable technology will reduce consumption and exhaust by 30% or more, experts say. Even a modest drop in smog will be noticeable come 2008 when hoards of foreign tourists and athletes clog Beijing’s arteries.

Dongfeng and FAW in particular are preparing for the hybrid bus boom, as well as developing mass transit vehicles that can run on fuel cells or electricity alone.

This diversification of research is another asset, besides cheaper production, that China brings to the clean fuel arena. By exploring various modes of advancing non-fossil technology, China will be able to choose the best and most promising from a market standpoint, once the trials have been run.

Foreign joint ventures have sped up China’s auto industry development by as much as 25 years. I’m sure that collaboration will benefit many US investors as China turns its training wheels into Monster truck tires

In 1990 China produced 43,000 cars, and in 2004 just over 2.3 million.

Recent economic history tells us that if China sets its economic mind to a task, it will get done. Watch for the development of the Chinese auto industry to pick up the world’s hybrid markets along the way once the question of Chinese quality is settled.

As China picks up the pace, I’ll keep you up to speed.

– Sam Hopkins

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