Shanghai Automotive Industry Corp. aims to be one of the world’s top six auto manufacturers by 2020.
Shanghai Automotive is the China’s largest automaker through its 50-50 joint ventures with both General Motors and Volkswagen.
The two joint ventures sold 597,000 cars last year in China, capturing 29 percent of a national market that has become the No. 3 global market behind the United States and Japan. Germany is No. 4. Shanghai Automotive sold 848,000 vehicles last year, but nearly all came from joint ventures that assemble cars designed by other automakers. That makes it No. 17 globally.
ecoming the global No. 6 carmaker within 16 years would be a quantum leap. PSA/Peugeot-Citroen, which is No. 6, sold 3.3 million vehicles last year.
ut Shanghai Automotive’s joint ventures have given the automaker a huge war chest: Its 2003 sales were 186.2 billion yuan, or $22.5 billion at current exchange rates. The company didn’t release profit figures, but profit margins in China’s auto industry are notoriously high.
In early July, Shanghai Automotive entered the ranks of the Fortune Global 500, Fortune magazine’s list of the largest 500 global companies based on revenue.
Now Shanghai Automotive is using that capital to expand beyond the confines of its joint ventures. It plans to produce 50,000 Shanghai Automotive-badged cars by 2007.
the much-publicized purchase of 48.9 percent of Korea’s Ssangyong -awaiting final approval from the Chinese government – and the continuing talks to buy England’s MG Rover would give Shanghai Automotive some of the technology it needs.
In 2003, Shanghai Automotive became the first Chinese carmaker to take a stake in a foreign automaker when it took a 10.6 percent share of GM Daewoo. That also helped it gain access to automotive technology. If Shanghai Automotive’s joint bid with MG Rover to acquire Daewoo FSO and its plant in Warsaw succeeds, it would have a production base within the European Union.
Shanghai Automotive’s engineering academy, with more than 400 engineers, will adapt the acquired technology to Chinese conditions.
Shanghai Automotive owns a bus manufacturing company but has few other commercial vehicle assets.
So the Chinese automaker recently announced it would buy Chongqing Heavy Vehicle Corp., which makes Hongfan brand heavy-duty trucks in southwest China. In China, commercial vehicles still represent almost half the total vehicle market.
As for components, Shanghai Automotive already owns 55 parts companies, most of them joint ventures.
In a business plan announced last summer, Shanghai Automotive said it was considering buying an overseas parts maker to help boost its exports from China.
Shanghai Automotive’s exports of components and a few vehicles rose to $349 million last year.
Its 2004 target is $500 million. But the company must learn to manage all the parts of its growing empire.
“The challenge for SAIC is whether they have enough management talent to manage this diverse business portfolio,” says Paul Gao, a principal with consulting firm McKinsey and Co. in Shanghai.
Heavy reliance on foreign partners has elevated the Chinese automaker’s management skills, at least at the top levels. But success has bred complacency among many of its midlevel managers, who have little glo- bal management experience, Gao notes.
Shanghai Automotive also will have to absorb another crucial skill from its foreign partners.
“It is possible to buy much of the technology involved in auto manufacturing,” says Eric Thun, an associate professor of political science at Princeton University who studies China’s auto industry. “But the process technology required to put it together is difficult to purchase.”
SAIC’s goal is to become one of the world’s top 6 automakers by 2020. Here’s how it ranked in 2003 global unit sales.
1. General Motors: 8,594,605
2. Toyota Motor Corp.: 6,783,463
3. Ford Motor Co.: 6,541,562
4. Volkswagen: 5,015,911
5. DaimlerChrysler: 4,355,800
6. PSA/Peugeot-Citroen: 3,286,100
17. Shanghai Automotive: 848,120
Note: Top 6 carmakers include wholly or majority-owned affiliates; Shanghai Automotive includes 597,000 joint-venture units also counted in GM and VW totals.
Shanghai Automotive Industry Corp. is China’s biggest carmaker through its joint ventures with GM and VW. The Shanghai-GM Woling plant, above, is among the Chinese company’s operations