Automakers gear up for an Eastward drive

Global automotive chief executive officers are confident of their revenue growth in China achieving sustainability

Although the automobile market in China has slowed from high double-digit growth in 2009 and 2010, automakers still expect their businesses to achieve sustainable growth in the long run.

Volkswagen AG, Europe's largest automaker by sales, signed an agreement with its Chinese partner SAIC Group to enhance their strategic cooperation, expand capacity of their Foshan factory in Guangdong province, which will start production this year, and set up a new plant in Changsha, Hunan province. The deal was signed during Premier Li Keqiang's three-day official visit to Germany last month.

The agreement is part of the German automaker's plan to invest 9.8 billion euros ($12.6 billion) in China by 2015, the largest investment plan in the world's biggest auto market.

Martin Winterkorn, chairman of the board of management of Volkswagen AG, said the company plans to establish seven new plants in China in the coming years, to boost its local annual production capacity by more than 60 percent to 4 million units by 2018.

In 2012, the company saw its profits surge by 40 percent year-on-year in China, representing 30 percent of Volkswagen's global sales. In the first quarter its sales maintained the momentum with year-on-year growth of 21.3 percent in the country.

General Motors, the largest foreign automaker by sales in China, also recently announced aggressive investment plans, but did not disclose detailed financial figures.

In 2012, General Motors' joint ventures opened two new manufacturing plants in China. They will open four additional plants in the country through 2015. This will enable General Motors to increase its domestic manufacturing capacity by 30 percent to about 5 million units annually. It will also create approximately 6,000 new manufacturing jobs.

"General Motors' manufacturing facilities in China are running at near maximum capacity. We continue to add capacity to keep up with the rising demand for our products. We are going to launch 17 new and upgraded models in China this year," said Bob Socia, president of GM China.

General Motors is also expanding its dealer network to make it easier for its customers in China to buy and service their vehicles. It is adding 400 dealers in 2013 alone, which will give it 4,200 dealers at year-end. By 2015, the US conglomerate anticipates having about 5,100 dealers nationwide.

Another US automaker, Ford Motor Co, is also planning its largest expansion plan in 50 years — doubling production capacity in China to 1.2 million vehicles by 2015.

South Korea's Hyundai Motor plans to invest in a fourth manufacturing facility in China with expected capacity of 300,000 units, while its subsidiary Kia Motors Corp has started construction on its third plant in the country, which will boost the combined manufacturing capacity for Hyundai and Kia to 1.8 million vehicles a year.

According to PricewaterhouseCoopers' 16th Annual Global CEO Survey Automotive Summary, China tops the list of country destinations where automotive CEOs expect their business to grow this year.

In addition, nearly two-thirds of 90 automotive CEOs from 32 countries who are looking to China as a growth market intend to build or further expand their manufacturing capacity in the next 12 months, the report said.

Similar to other industries, the report also found that growing their customer base and defining the brand in China are also critical to global executives.

According to the report, 30 percent of global automotive CEOs surveyed are very confident of revenue growth over the next 12 months. However, the survey also shows that automotive CEOs see strong prospects for revenue growth in China and 32 percent of automotive CEOs said China is one of their top markets.

"We see rapid growth in emerging markets, especially in China. Growth opportunities in traditional mature markets are proving to be more difficult because of the challenging economic conditions there," said Thomas McGuckin, auto leader of PwC Asia-Pacific.

Consulting firm McKinsey & Co said China's passenger vehicle market will maintain an average year-on-year growth of 8 percent over the next decade because of booming demand for sport-utility vehicles and fast urbanization in the world's fastest growing economy.