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China Puts The Screws To BMW
The market is gigantic: With sales of new vehicles approaching 18 million units in 2011, China is the largest market in the world, far ahead of the US, with its 12 million units. Some fearless industry voices estimate that sales will reach 28 million units in 2017—fearless because the China bubble might blow up before then, which would rejigger the numbers on a massive scale, as it did in the U.S., where sales dropped from over 16 million units before the credit bubble burst to 10 million units during the crisis. However, no major car maker in world would want to miss out on the opportunities in China, and BMW is no exception. And yet, risks are mounting.
Relentless pressure from the National Development and Reform Commission (NDRC) of the Chinese government is pushing foreign car manufacturers to share more of their advanced technologies with Chinese partners, particularly in the hot sector of "New Energy Vehicles" that was defined in China's most recent five-year plan as strategic industry. The government cites environmental concerns as primary motivation for this shift to electric vehicles. However, the environmental benefits of electric vehicles are not that clear in a country where about 80% of the electricity is generated by burning coal, the filthiest of all fossil fuels. So there have to be other reasons.
"China should attach great importance to research and development of core technologies in green vehicles," said Wang Fuchang, a deputy director-general with the Ministry of Industry and Information Technology, about a year ago. The goal: Aim for "a global lead in this field by 2020." Through technology transfer.
It's not a law, but every car manufacturer that wants to build cars in China has been given to understand in closed-door talks that it must share "New Energy Vehicle" technologies with Chinese partners. The deadline is 2015. Car manufacturers have responded by offering to create China-only brands. VW already has decided on the brand Kaili, Daimler is following suit, and now BMW can no longer drag its heels.
"We will find a solution," said Friedrich Eichiner, member of BMW's board of management during a press conference last week concerning talks with the NDRC. And he sketched the outline of a solution: BMW and its Chinese partner, Brilliance, will build a separate brand for New Energy Vehicles. However, these cars will not reflect the latest BMW technologies because it wants to give up as little as possible and protect its critical technologies long enough to where they're no longer critical. And the new brand will not have any connection to the brand BMW to avoid "watering it down," Eichiner said.
Fat profit margins: Over 25% of BMW's worldwide profits come from China, though it sells only 15% of its production there. And it's just scratching the surface of the 1.3 billion potential customers. The versions sold in China are more profitable because they're loaded with luxury items and are specifically designed for Chinese tastes. The rear seat is the most important location in the car as BMW owners in China tend to have chauffeurs. Hence, rear seats are more comfortable, afford more legroom, and offer the latest infotainment, not only in the 5 and 7 series but also in the smaller 3 series.
To meet the Chinese demand for its flagship products, BMW is plowing $1.4 billion into the expansion of its plant in Tiexi, Shenyang province. The plant will then have an annual production capacity of 200,000 units. With the 100,000 units from its Da Dong plant, BMW will have a capacity of 300,000 units in China.
A risky bet for BMW. These outsized profit margins and rapidly growing sales are what BMW is trying to protect in the near term. And so it has to yield to the demand by the Chinese government to share technologies with Chinese partners. But in the longer term, especially if electric vehicles take off, BMW might create formidable competitors that will try to eat its lunch down the road.
For an example of how fast small Chinese companies can blow away worldwide competition: "PROST! Germany Lost the Beer War, And China Won).
Wolf Richter - www.testosteronepit.com "where the truth comes home to roost."
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Just a bit of sarcasm to trick the sleeple. I loathe hypocrisy almost as much as I loathe capitalism. :)
Shaping the environment to create opportunities to sell your bin, hey, they used to call the US American Spirit or something like that...
WANG FUCHANG??? No shit??
Good article. Tip of the iceberg, no? Every western country is fighting to sell in China.
At the 2008 economic summit in Shanghai, GE, Microsoft, etc all said,"China is our future." A real blow to USA even though it seemed to fly by the Sheeples here. Nothing has changed since then escept The Middle Kingdom continues to replace the shrinking west industiral nations who rely on wars to keep them viable instead of actually producing something useful. Life moves on.
oh yeah? well Microsoft gets paid for (wait for it) 5% of the Windows in use in China...the rest is stolen. I don't mean just by retail people, I mean down the halls of China Construction Bank, etc. Stolen.
That's their future, huh?
They are all monkeys with their fists clutching peanuts, but unable to free themselves from the bars surrounding their arm. Greed will make them starve themselves to death before they would open their hands and drop the peanuts and thus free themselves.
http://dlysen.com/images/story_monkey_jar.jpg
The math is fantastic, 1.3 billion potential customers, yet there is not enough petroleum left in the world for 1.3 billion more cars, let alone energy enough to build 1.3 billion cars.
Where would China find 1.3 billion computers and 1.3 billion electric sockets and 1.3 billion coffe makers to make coffee while 1.3 billion chinese wait for 1.3 billion computers to boot Windows8?
The math is fantastic, 1.3 billion potential customers, yet there is not enough petroleum left in the world for 1.3 billion more cars, let alone energy enough to build 1.3 billion cars.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
More is the key word.
The Western world is on par: 1 billion people.
So there is room for that size of market.
There is no room for two markets of that size though.
But why should it be when Smithian economics have shaped the world so that the Western world is where rentiers live?
And the whole West is far from being populated exclusively with rentiers. Excess population in the West.
I cant stand microsoft or apple or any of their $hit products. Open source bitchez. By people who care, for people who know.
....but are to cheap to communicate with the millions other people in the world that use evil empire's de facto standards like MS Orifice
Last time I checked Open Office was fully MS compliant. Assuming I understood your comment correctly?
the banker parasites will one day to China what they are doing to the U.S. now.... suck it dry and walk away to the next victim.
Don't count on it!
Jews do not own Chinese government and their politicians as they do in the USA.
yea the jews are the worst, they should all be killed and they are at the heart of all the worlds problems.
10 million people control the actions of 7 billino people. it's so entirely clear that eliminating the jews and blaming them and israel for all the worlds problems will really solve the 'problem.
dumbass
Exactly. That day will not be long after the bankruptcy of the other nations.
China is harvesting the engineering talent and knowledge base of the Western world so they can build it themselves; and then take over.
What a bunch of sellouts we are; with seemingly little thought for the future implications.
Gee, wonder who will want/need to go to war for oil in Africa and the Middle East? And not just for BMW's, but for growing food with all the John Deere clone tractors and equipment.
DUH
That's the thing though...engineering talent can't be "harvested" and replicated. They can steal the plans, but the minds that made them aren't for sale.
As an example, take a look at the cookie-cutter bullshit that passes for cutting-edge research in China's universities for a huge laugh. Not an original idea for miles, just xerox copies of what they've read elsewhere.
Communists don't understand that you can't have free-thinkers and intellectual progress in a slave society.
And of course as usual capitalists are forced to succumb to China's blandishments. Fools. For soon they will have nothing to sell China, and China will no longer need them.
And the race to the bottom accelerates....
Broaden your horizons.
http://www.nytimes.com/2010/11/14/us/14nazis.html
http://www.theforbiddenknowledge.com/hardtruth/omegafile06.htm
http://www.invent.org/hall_of_fame/1_0_0_hall_of_fame.asp
What is it with all you haters? All I'm saying is that it's disingenuous to claim American ingenuity for a world of history that has relied on knowledge development from many different sources... Arabia, China, India, Persia, Europe, Greece, Rome, etc... the world today is built on the knowledge of the past, and to claim it was invented in America is delusional. And to add insult to injury, I exposed how scientific developments after WWII were actually continuation of research developed in Nazi Germany, a fascist dictatorial state. So it wasn't American capitalism that developed all the artiacts you cherish, it was human ingenuity.
Where I agree with the thrust of the article is that Chinas copying of the technologies will result in the end of technological evolution, but that is precisely how a free market capitalist participant would work... profit at all costs. The Chinese are stealing, but that isn't prohibited in capitalism, it's prohibited in other laws, laws that don't mean anything once the financiers win and governments disappear. In the end, the lowest common denominator approach will be the end of humanity, so we better start working on a high brow socio economic model asap... one that values innovation / imagination above profit, one that values creativity, one that favors independent thinking. Oh wait, the controllers don't want that... they actually want what's happening in China. The death of human intelligence.
you're one a them "long term thinkers" aint ya?
You new I was a snake when you put me in your pocket.
Every company gives in because all management cares about is bonus for the next few years. China wins, management wins. Who cares about the shareholders, workers, economy back home -- ie the suckers.