Zuo Yan'an, chairman of Jianghuai Automobile Corp. (JAC), attended the annual session of the National People's Congress in early March as a deputy. In an interview with auto.sohu.com before he left for Beijing for the NPC session, Zuo expressed views on a wide range of auto industry-related issues. Following are excerpts of the interview. Editor
Rules for investment abroad
auto.sohu: You raised two bills at last year s NPC session. One is about allowing people to buy cars with their individual housing fund and the other about releasing the registration data of new vehicle sales. Were they adopted?
Zuo: No, though some explanations were given.
auto.sohu: Are you going to raise bills again this year?
Zuo: Yes, I am going to raise some new bills. One of them is about formulating rules that govern automotive investment abroad. We do have policies and regulations on investment abroad but, coming from a variety of central government departments, including the National Development and Reform Commission, the Ministry of Industry and Information Technology and the State Administration of Foreign Exchange, they are fragmentary and not always in agreement. We hope to have uniform rules that govern investment activities abroad within the frame of WTO rules.
auto.sohu: Of late, domestic industries have been subject to international anti-dumping investigations. What about the auto industry in this regard?
Zuo: The auto industry has been free of this so far mainly because our exports have not had any impact on the world market. No homegrown automaker has succeeded in exporting cars to mainstream countries. Brilliance Auto had a failed try in Germany, which was expected. JAC follows two principles for internationalization. One is to proceed in a step-by-step way, namely, to proceed from simple trade to assembly to the export of capital, technology, management and culture. The second principle is to go from easier to more difficult markets, namely, to access East Europe and North Africa before going to West Europe in this side of the world and to access Latin America before going to North America in the western hemisphere.
In developing business overseas, automakers need policy guidance as well as encouragement from the government. For example, there should be rules on how to access credit in foreign exchange and insurance.
New energy vehicles
auto.sohu: What is JAC s strategy in new energy vehicles?
Zuo: We have chosen to do the right thing in the right place at the right moment. More than 10 years ago we were urged to launch a new energy vehicle project. We didn t. Why? Because if we chose a wrong technical route it would be difficult for us to extricate ourselves after throwing away a lot of money. There is a great variety of hybrid power applications, including weak, moderate or full hybrid, pure electric, extended range plug-in hybrid, etc., etc. Plunging into all of them and you may come out empty-handed after expending a lot of resources. But we have not been idle in all these years. What have we been doing? We have been engaged in investigations, research and learning. We have chosen dual mode electric technology for coaches, using lithium-iron phosphate battery. We have decided to develop pure electric economy cars and extended range plug-in B-Class vehicles.
We have had fairly clear strategic thinking. We came out with products first. We already have 30 electric buses running in the city of Hefei. In our second step, we have set up a new energy research academy by pooling resources from the HefeiPolytechnicUniversity, JAC and JAC s Automation Co. The new energy research academy has a clear objective: to develop the electric car, including battery management system and electric motors.
We will move to the third step - production on an industrial scale - after we have achieved quality uniformity and solved the cost problem.
China to become an automotive power in 10 years
auto.sohu:Last year production and sales of automobiles in China exceeded 13 million units. China has become the world s largest automobile market. Is China an automotive power now?
Zuo: No.
auto.sohu: How can China become an automotive power?
Zuo: China can be regarded as an automotive power when Chinese brands have a market share of more than 70 percent and take up a considerable proportion of B-Class cars. This is viewed from a market perspective. In a capability perspective, China would be an automotive power when it has acquired a complete industrial system for the manufacture of own-brand vehicles, a system that encompasses a whole set of capabilities from the R&D of raw materials and technology to the R&D, testing and production of key automotive subassemblies, to sales, logistics and aftersales services. Judged on this standard, homegrown automakers have a long way to go. We may feel good about last year s market size of 13.7 million units. But who made the most money from this market? The truth may shock people.
auto.sohu:China has a long way to go. How long?
Zuo: If we have a good development strategy tallying with the automotive industrial policy and if there is good coordination between the State, State-owned enterprises and private businesses, it won t take long for China to become an automotive power. I believe 10 years are about enough.
Look at the Republic of Korea. Cars made in ROK in the 1990s were roughly of the 2005 level found in China. Look at the cars made in ROK now. They are no inferior to any in the world. The Koreans have had a clear strategic objective and worked hard to achieve that objective.
If you don t have a clear strategic objective, an automaker producing own-brand vehicles may one day become no more than a contract producer. We are witnessing this in the cell phone industry. Multinationals reap profit with high-end cell phones and beat the competition with low-end ones. Contract-made cell phones are so cheap that they are used to rout own-brand cell phones. This may happen to the auto industry, too. The Chevrolet Lova and the new Chevrolet Sail are now priced below 60,000 apiece. If 10,000 is counted as the premium price of the Chevrolet brand, our cars of the same type can sell for only 50,000 apiece since, in the eyes of the buyer, our 50,000 car is of equal value to the 60,000 Lova. This is a dangerous trend for homegrown automakers.
No mergers until we grow strong
auto.sohu: The government s Automotive Industry Readjustment and Revitalization Plan last year calls for industry restructuring and consolidation. How is restructuring going in the automotive sector?
Zuo: There is restructuring of the product mix and restructuring of the industry as a whole. Restructuring of the product mix is the business of each automaker. If homegrown automakers get busy with mergers and acquisitions in industrial restructuring, multinationals behind the joint ventures would take the opportunity to snatch market shares. We cannot do any restructuring of this kind. What we should do now is to grow, increase our market share. We should refrain from restructuring before we grow strong enough.
Lesson of Toyota recall
auto.sohu: Does the recent Toyota recall represent an opportunity for China s homegrown automakers?
Zuo: I don t view it that way. I don t think it right to gloat over the event.
I think the Toyota recall is a warning to businesses like ours. A business, however outstanding it is, should never forget the fundamentals that have contributed to its success. Excessive expansion and excessive pursuit of profitability are root causes for Toyota s current problems. Now Toyota has to go back to the very fundamental: product first. We should draw a lesson from Toyota s problem. It is not an opportunity for us.
Product quality is of paramount importance. Company size and profit do not sway the Germans, who make things of the highest possible quality regardless of cost. That is why Japan cannot make a car that is as good as a Mercedes-Benz. The manufacturing cultures are different. Toyota has taught this lesson to us homegrown automakers: neglect product quality and you are in big trouble.
Rewritten by Raymond Chen based on author's article carried by auto.sohu.com
<Zuo Yan an: We should refrain from restructuring before we grow strong enough.>