The mega platform strategies of Chinese OEMs
Aiming for improved profitability for every model in the midst of strong competition
Background: Why are privately owned Chinese OEMs moving toward mega platforms?
|Figure 1: Chinese basic passenger car market after 2000 (tens of thousands, %)|
|Source: Created by the author based on each annual edition of the 'Automobile Industry Economy Operation Report.'|
Around the year 2000, several Chinese companies emerged that had not only implemented foreign technology, but also developed own brands in-house. From then up until 2010, the primary segment of the basic passenger vehicle market was composed of sedans and hatchbacks. Armed with affordable vehicles, the Chinese OEMs rose up and, together with Japanese vehicles that had previously achieved popularity in China, ended Germany-based VW's monopolistic dominance of the market (see figure 1).
After 2010 there were sustained releases of affordable vehicles from foreign OEMs into the basic passenger vehicle market, and as a result the conventional division of high-end vehicles being released from foreign brands and affordable vehicles being released from Chinese brands was dissolved, with the market turning into a free-for-all. However, for privately owned Chinese automakers, which had weaker branding than foreign companies, the entry of foreign automakers into the affordable vehicle market exerted pressure on what had been their domain for doing business leading to a decrease in profitability. As a measure to get out of this precarious position, the Chinese OEMs attempted to shift their product strategy away from the affordable passenger vehicle market to the market for affordable, small SUVs where there was no competition. This endeavor was successful as the flash exploitation of the new market coincided with consumer demand for a switchover from sedans.
However, it can be expected that foreign OEMs will quickly enter the affordable small SUV market. Because of this, it is possible that the superiority of Chinese automakers in the new market will not last as long as it did in the conventional market for basic passenger vehicles. In order to resolve this dilemma, Chinese OEMs have begun looking toward a mega platform strategy.
After 2010, in contrast with the downturn experienced Japanese and Chinese OEMs, VW reestablished its position in the market. In addition to common methods such as local parts procurement and localization of development, the MQB strategy actively promoted by VW may provide a hint as to why VW was the only OEM to achieve this success.
In 2013, VW's production capacity for new MQB based vehicles reached the milestone of 1 million vehicles, and this is expected to rise to 4 million in 2016. In China, new MQB based vehicles were introduced to FAW VW's Changchun, Foshan, Qingdao, and Tianjin plants; as well as Shanghai VW's Shanghai Anting, Nanjing, Ningbo, and Changsha plants; thereby greatly enhancing China's position in the global production plan for MQB based vehicles. As a result of this, as VW increases the global profitability of individual models, it has also been able to simultaneously achieve flexibility and profitability in the ever changing Chinese market, making it even easier for the OEM to enter the affordable vehicle market.
At the same time, Chinese OEMs have been using a strategy of benchmarking popular foreign models and releasing them as affordable vehicles for a considerable amount of time. The increasing affordability of foreign vehicles is a matter of life or death for Chinese automakers, and the shift to a mega platform is crucial to their survival.
In order to maintain their economies of scale, Chinese OEMs tend to continue to keep even unpopular vehicles on their lineups for extended periods of time. Because of this, OEMs with a longer history have a tendency to keep more unpopular vehicles, creating a serious dilemma between profitability and maintaining economies of scale. In other words, such OEMs have all the more reasons to make the switch to mega platforms.