China's booming market keeps the industry in suspense

The mood is upbeat and no end in sight

The Chinese automobile market has kept the industry on the edge of its seat for several years now. Dynamism and double-digit growth are its twin hallmarks. For KSPG, too, investing in China has long since paid off. Last year alone, sales jumped by 30 percent, well above the industry average.

When it comes to the Chinese auto market, journalists, commentators and analysts understandably turn to superlatives. They call it the engine of growth for the entire industry, the world’s most important car market - and a profit-spinner for the German automotive sector. And the numbers certainly support these statements. “Automotive sales in China went into high gear: 2013 over 16 million new cars were sold in the People’s Republic - weaker economic growth notwithstanding, car sales in China rose by a brisk 23 percent, making it the world’s largest single market in terms of volume”, writes the German Association of the Automotive Industry (VDA) in its latest “Markt international” analysis. Based on preliminary figures, sales in 2014 are supposed to have reached 18.4 million units, while the forecast for this year points to a further increase approaching 20 million.

In order to comprehend the dynamic expansion of the automotive industry in China, it’s important to look at recent history. It was only 31 years ago in 1984 that China began to open up and reform its economy. The founding of the joint venture Shanghai-Volkswagen Automotive Company Ltd. (SVW) paved the way for motorizing Chinese society. Until then, the bicycle ruled the road in China.

The pioneering success of SVW did not go unnoticed. One after another, original equipment makers and their suppliers announced new joint ventures, plant openings - and record-breaking figures. By the turn of the century, the former bastion of the bicycle had wholeheartedly embraced the automobile, its roads suddenly crowded, hectic and loud.

The at times anarchic free-for-all on the highways of the People’s Republic is a result of China’s car ownership boom, which is unparalleled anywhere and shows no sign of slowing. Indeed, in 2015 the desire to own a car is as strong as ever in China - this despite reports of rapidly multiplying mega traffic jams and a road system that’s often groaning under the strain.

Many observers compare modern China to West Germany in the ’50s and ’60s: a self-consciously hard-working, dynamic, ambitious, highly motivated nation with rising aspirations. Today for example the focus shifted to safety as well as fuel efficiency and lower emissions, though consumers also expected to see simultaneous improvements in other areas.

Against this backdrop, it is easy to understand how KSPG – with its comprehensive array of lightweight parts and emission reduction solutions – has been so successful in China. As early as the second half of the ’80s, management of the then-Kolbenschmidt company took the daring step of cooperating with a Chinese partner, Shanghai Piston Factory. At the start of 1989, a complete piston manufacturing facility was shipped to China, where it was installed in a newly built plant in Shanghai.

Pierburg too secured a foothold in China by moving an entire factory there: when European emission regulations put an end to the carburetor era in Germany, it found a new lease on life in China.

Partnering with Deutsche Entwicklungsgesellschaft (DEG, the German Development and Investment Corporation) and the previous licensee, Shanghai Piston Works (SPW), in July 1997 Kolbenschmidt became the first major piston producer to be present in China in a joint venture. In 2001 Pierburg followed suit and joined forces with Shanghai Automobile Nonferrous Casting Plant (SANCP), a wholly owned subsidiary of Shanghai Automotive Industry Corporation (SAIC), to set up the joint venture Kolbenschmidt Pierburg Shanghai Nonferrous Components (KPSNC). KPSNC develops, produces and markets suction modules, cylinder heads, steering components as well as complete oil and water pumps.

In this phase of the Group’s entry into China, which lasted until the start of 2005, the main challenge was to get production up and running and to create structures. Moreover, the first employees had to be initiated into KSPG’s culture of quality. In 2005 the two new joint ventures generated sales of € 80 million. Eager to build on this, between 2005 and 2009 KSPG continued to invest in further growth. The joint venture partners jettisoned obsolete and obsolescent technologies with low value added, including simple die cast components and intake manifolds, focusing instead on future-oriented products such as pressure- cast aluminum engine blocks, aluminum wheel rims, structural and chassis parts along with other advanced components.

This period also witnessed KSPG’s endowment of a professorial chair for automotive technology at Tongji University in Shanghai. Establishing two wholly owned subsidiaries in China was another aspect of the second of phase of KSPG’s entry into the Chinese market. MS Motor Service Shanghai Trading Co. Ltd., the first wholly owned subsidiary of KSPG AG in China, was founded in 2008, emerging from the Representative Office established in 2007 in the free trade zone in northeast Shanghai. The following year saw the creation of Pierburg China Ltd. in Kunshan.

A further glance at the numbers reveals just how quickly investments in China can pay off. By 2009, sales had reached €160 million, double the figure for 2005. Events continue to proceed apace. After 2009, the Group pursued a policy of consolidating what it had already achieved, widening its lead, diversifying its product range and building new plants - all aimed at further strengthening its powerful position in the market. As part of this strategy, at the end of 2012 the Group opened KSPG House in Shanghai, which serves as the head office for its wholly owned Chinese subsidiaries and as an initial point of contact for all customers in China. In 2013 a new production facility was built for Pierburg China Ltd., which produces pneumatic pumps, electric throttle valves and magnetic valves. A few months later, another plant followed - a joint venture dedicated to manufacturing and marketing pumps.

In November 2013 a new large pistons factory went into operation at Shanghai. And in March 2014 the Group’s longstanding cooperation with SAIC subsidiary HASCO expanded to include another new production facility. The new plant won’t just be used for casting and processing aluminum engine blocks and cylinder heads: this plant marks the launch of a new product segment in the increasingly important field of lightweight automotive engineering. In the future, aluminum structural components will be cast and processed here for the Chinese automobile industry

“This makes us one of the first companies in China to offer our customers additional weight-saving potential in automobile design thanks to this forward-looking approach, which in turn helps to protect the environment”, declares Horst Binnig, Chairman of the Executive Board of KSPG.

Incidentally, early commitment and a sound working relationship with Chinese partners have benefitted KSPG outside of China as well. At the Group’s headquarters in Neckarsulm, Germany, a joint venture company was founded in summer 2014 with its longstanding partner HASCO. The mutual goal of the two partners, each of which has an equal stake in the new company, is to promote the current positive trend in cast lightweight automotive components on an enduring global basis. Global in this context doesn’t just mean China and Germany, but all relevant triad markets.

  • Rheinmetall Automotive AG

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