Cost Control Challenges Torture China's Automotive Industry

After the two major giants of the global auto industry, General Motors and Ford, experienced the business difficulties of the year 2005, the first quarter of 2006 was even worse, still difficult. The future prospects of the two auto giants cause doubts in the industry. Similarly, some European companies such as Volkswagen are also facing the bottleneck of how to overcome the high cost of development. Compared with Japan and South Korea auto companies that are relatively successful in cost control, whether European and American car companies can keep their own market share in the local market has been greatly questioned by the industry.

This question has also received attention in various aspects in the domestic market where domestic competition is internationalized. In 2005, domestic auto industry output increased by 14%, but profits have dropped by 30%. The cost control problem is also in the torture of China's auto industry.

Human costs drag on General Ford

General Motors Chairman Wagner cited three reasons when analyzing the predicaments faced by General Motors and the US auto industry. The top priority was the high pension and medical insurance premiums that made the company overwhelmed. In 2004, GM spent a total of 5.2 billion U.S. dollars on medical and pension insurance. On average, it allocated 1,525 U.S. dollars per vehicle (VW is 418 U.S. dollars, while Toyota is only 97 U.S. dollars). Of the $2.4 billion in new Ford spending this year, $1.7 billion is planned layoffs and work bank project benefits (work bank, an agreement reached between unions and major U.S. car manufacturers that employees can still Enjoy most of the salary and welfare benefits, as well as expenditures related to the voluntary termination of the contract compensation program, US$425 million for non-cash pre-tax expenses related to pension reductions, and 280 million US dollars for non-cash related to other equipment-related costs. Pre-tax expenses.

High production costs also plague the European automotive industry. At present, Germany is one of the countries with the highest labor costs in the world. It is understood that the average hourly wage for German automotive industry workers is 33 euros, which is 50% higher than that of French and Italian equivalents, and 20% higher than that of the United States and Japan. Since the end of the 1990s, high costs have caused heavy burdens on European and American auto giants, while rivals such as Japan and South Korea have seized a large market share.

In terms of cost control, Japanese companies are quite successful. Since 2000, Toyota President Watanabe Watabe has led Toyota's "cost-oriented competition for the 21st century" (abbreviated as CCC21), which has enabled Toyota to save $10 billion over the past five years. Toyota thus became the most profitable company in Japan and the most profitable company in the world auto industry.

The relationship between the cost and the future of the industry

According to Jia Xinguang, chief analyst of the China Automotive Industry Research Institute, several major turning points in the history of the automotive industry have come from reducing costs. For example, Ford invented the production of large quantities of flowing water that drove the rise of the American automobile industry. The adoption of the Toyota production method laid the foundation for the Japanese auto industry to dominate the world. The global procurement, platform strategy, and modular production introduced by Europe changed the world’s automotive industry. production methods. Brands, technology, quality, services, etc. are all important, but for now, Toyota's last stepping stone to the world's largest car company is cost. The lower cost means that the product price can be made more competitive, which means that even if the price is reduced or less, the profit can be increased. In 2005, Toyota had sales of 8.09 million vehicles worldwide and 9.2 million vehicles. However, Toyota’s profit margin was 9%, and GM was only 3%.

Some Chinese companies in the joint venture company stated that due to the high cost, European and American auto companies have moved their production bases to low-cost countries in order to ease the pressure and the purpose is to compete with Japanese and Korean companies. It is in this competitive landscape that our country has become the focus of investment by multinational corporations. Some multinational companies admit that low labor costs are very important indicators for companies when they choose strategically to invest in production. It is not difficult to explain why most companies only use our country as an assembly place for products rather than a research and development site. However, this approach has led to the fragile side of China's auto industry, that is, relying solely on lower labor costs as the most core part of the automotive industry competitiveness. When Nissan Motor’s president Carlos Ghosn talked about Dongfeng’s joint venture with Nissan, he believed that China’s contribution to the joint venture was zero. From this perspective, the words that make us embarrassed are not unreasonable.

However, with the adjustment of relevant national industrial policies, the phenomenon of multinational companies reassembling light R&D is being changed. However, the R&D departments of most companies still only make some necessary vehicle adaptation improvements for China's market demand, and the R&D intensity is not great.

Chinese car companies expect cost breakthrough

The deputy general manager of the Chinese automotive joint venture company, who asked not to be named, told reporters that due to the relatively weak competitiveness of China's auto companies in core technology, the labor cost has also been increasing. If it cannot achieve a breakthrough in cost, some of the In the future, the company will not rule out the transfer of this industry to countries and regions with lower labor costs. Even in China, there are cases where the industrial base is shifted to areas with lower labor costs. Shanghai GM selected Yantai in Shandong and Shenyang in Liaoning two years ago as a manufacturing base. In addition to the overall planning considerations of the company, the labor costs in the Shanghai area are higher than those in other parts of the country.

Jia Xinguang believes that the lower labor cost is the core of China's auto industry competitiveness. This situation cannot be maintained for too long. “With the rise in domestic wage levels, the advantages in this area are gradually weakening, and our lower efficiency will eventually offset the advantages in labor costs. In 2005, domestic auto industry output increased by 14%, but profits declined. 30%, so the Chinese auto industry's task of controlling costs is very heavy. I think this is the most worthy lesson learned from the GM and Ford crisis."

In addition, compared to European and American multinational car companies, most of the auto companies in China have only a very short time to set up, and the pressure on employees' retirement funds and medical care is not great. However, if this problem cannot be resolved early enough, as time continues, the difficulties facing GM and Ford will soon come to the head of China’s auto companies. The most critical link at the moment is to reduce costs and increase efficiency, and to change the status quo that the company's only core competitiveness is the low labor cost.

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General Ford Day Hard

U.S. General Motors had a huge loss in fiscal 2005, and the loss amounted to the highest level since 1992. The sharp decline in the sales of US fuel-efficient cars, combined with heavy restructuring expenses, caused the world's largest automaker to lose $8.6 billion in fiscal 2005.

GM’s profitability in the first quarter of 2006 gave the company’s chairman and chief executive officer Wagner a slight sigh of relief. He told the media: "The results show that the business has begun to turn for the better." However, GM also claimed that due to rising raw material prices, the company's goal of saving $1 billion in component costs this year has been impossible to achieve. Previously, GM had already sold its stake in Japan’s Isuzu Motors and sold its financial subsidiary. In order to persuade unionized GM employees to accept arrangements to cut wages, benefits, and cut jobs, GM even proposed a "difficulty" plan to halve its dividend and CEO's salary. With the acceleration of the process of canceling the original welfare plan, General Motors became the third top US industrial company in the past two months to freeze the white-collar employee pension plan.

Ford's day is not much better. Ford Motor had previously rejected the proposal to bankruptcy. However, in order to revive the family business, the company recently estimated that the pre-tax expenditure for layoffs and factory closures in 2006 will be as high as US$2.4 billion. Ford last month said that it expects the company will pay $1 billion in related expenses for the restructuring plan. This means that at least 3.4 billion U.S. dollars of huge sums of money will have to be placed in advance by the company.

As the market share in North America continued to fall, Ford had to choose to compress production capacity and save costs. Earlier this year, Ford announced that in order to reverse its downturn in the North American automotive business, the company will cut 10% of its regular employees, about 30,000 people, shut down 14 factories, and compress 26% of its production capacity. Ford placed great hopes on the rectification measures named as "the advance plan", but implementing this plan is also a painful process. With the addition of one factory to another, the pressure on Ford continues to increase. (Hou Xiaojun)