CUTTING CORNERS

CHEAP AND CHEERFUL: Chinese makers such as Automobile are finding great success in emerging markets with their no- frills vehicles. REUTERS/REUTERS PICTURE

By skimping on frills, cutting corners and outsourcing design and engineering, Chinese automakers are shaking up developing markets around the world China’s new threat: the good-enough car

By Norihiko Shirouzu BEIJING, September 18, 2012

hina keeps getting better at making . One reason: It’s getting better at cutting corners. C Zhejiang Holding Group Co, one of China’s biggest car makers, conducted 20 to 25 crash tests when it developed its popu- lar Panda model, engineers involved in developing the car told Reuters. Global car makers typically conduct 125 to 150 crash tests for each new model. By relying more on computer simulations, Geely saved at least

SPECIAL REPORT 1 CUTTING CORNERS China’s NEW THREAT: THE good-enough car

The Panda bared Chassis: based on Geely auto’s Panda has become increasingly ’s Aygo model popular in emerging markets with its attractive produced in the Czech sticker price of $6,300. Republic, but used a far-cheaper manufacturing Cheap plastic process dashboard

Lighter weight doors: don’t close with a satisfying “thump!”

Panda-eyed grill and tail Fewer crash test lamps in the shape of paws: dummies: Geely auto considered cute when launched saved $31.6 million in 2008 to coincide with the and two years Beijing Olympic mascots development time

Source and photos: Reuters, Geely

200 million yuan ($31.57 million) and two Now, despite their homely looks, some vehicles last year. Some automotive analysts years in development time on the Panda, indigenous models are striking a balance are predicting a 50 percent increase to 1.25 the engineers said. between no-frills affordability and accept- million vehicles. Paring back on crash tests, skimping on able quality. In China, it is the age of the Some executives at big foreign manu- frills, simplifying designs, using cheaper good-enough car - and that has potential- facturers say China’s new model of creating materials and, in a departure for the indus- ly significant implications for the world good-enough cars poses a serious challenge try, outsourcing most of their design and auto industry. to the way the international industry operates. engineering are having a profound effect Models such as the Panda and the Great “This is a warning shot to the estab- on the cost bases of China’s dozens of car Wall H3 are becoming popular not lished engineers who have told their man- makers. Some are now able to sell cheap only in China but increasingly so in emerg- agement time and time and again that this and cheerful small cars for about 40,000 ing markets, from Indonesia to Egypt and is the minimum cost they can achieve with yuan ($6,350) - less than half the price of a Ukraine. They are driving China’s auto their existing design and production meth- plain vanilla Toyota. exports to record levels, even as growth in odology,” says Shiro Nakamura, a top Nis- Ten years ago, no discerning Chinese China’s auto market slows down. san Motor Co. executive and the company’s consumer would have bought China-de- chief designer. “Now the Chinese are say- GETTING TRACTION ABROAD signed cars. Not only were such vehicles ac- ing they can cut another 30, 40 percent of cused of being illegal counterfeits of foreign Exports of Chinese-produced vehicles are the cost.” models, but their quality and safety were forecast by China’s auto association to hit It normally takes four to five years for also mistrusted. one million vehicles this year from 849,500 established players like Co

SPECIAL REPORT 2 CUTTING CORNERS China’s NEW THREAT: THE good-enough car

and Toyota Motor Corp to come up with design and engineering firms, Chinese car a new car from the ground up. Chinese makers have effectively created a shared pool manufacturers can now do so in just two $6,400 of home-grown automotive technology. and half years by deploying an abbreviated The showroom price for a CH-Auto, for instance, has helped de- design process. sign an array of cars over the past decade, “Perhaps the Chinese achieve their low new Panda each time gaining fresh expertise, which it cost by sacrificing quality standards,” says Geely Automobile deploys for its next project - in most cases Nakamura. “But in many ways their way for a different company. CH-Auto was es- also points to ‘over quality’ or ‘waste’ we tablished in 2003 by a small group of job- have built into our conventional design less Chinese engineers who had trained process over the years.” with Beijing Jeep, a now-defunct joint ven- ture set up initially by Beijing Automotive THE COPY CATS Industry Holding Co. and American Mo- The Chinese approach is a product of the tors Corp. extraordinarily fast rise of its auto industry. CH-Auto and its rivals say they have As the country opened up to the West, car moved beyond aping foreign designs. In- makers were faced with relatively poor cus- stead of copying the shape of a component tomers at home and sophisticated products or an entire foreign car, they try to match made abroad. Global auto makers could sell its performance as well – often successfully their pricey cars to rich Chinese, but local OUTSOURCING: Chinese car makers save money – even as they improvise and simplify the Chinese auto makers had to come up with by oursourcing design and engineering work original design to cut costs. The aim is to cheap cars for the masses. to outside firms such as CH-Auto in Beijing. make cars affordable to China’s emerging Rapid growth in the economy spurred REUTERS PICTURE middle class, people who are earning 50,000 the creation of more than 100 registered to 60,000 yuan a year ($7,900-$9,500). automakers across China by the early 2000s “It’s not copying. It’s not that simple – but they lacked expertise. Their solution model: “It didn’t drive well like the foreign any more,” said Wang Kejian, president of in coming up with affordable cars was sim- car, either, and in some cases it was a safety CH-Auto, a former Beijing Jeep engineer ple: copy the designs of foreign makers. hazard on the road.” who was trained for a time in Detroit by “Around 2000, China began embracing Chrysler. “Since Chinese car makers have OUTSOURCING DESIGN an approach it described as ‘reverse-engi- no accumulated vehicle design technology neering.’ It was essentially a fancy word for A clutch of design firms is driving the ad- or know-how, we have to develop our own copying,” says Dai Ming, a senior engineer vances in affordability and quality in the by studying foreign cars and use local parts at CH-Auto Technology Corp, an inde- industry, including CH-Auto, where Dai suppliers to approximate the components pendent design and engineering company works; IAT Automobile Technology Co. and the cars.” based in Beijing. “The problem with those of Beijing; and TJ Innova Engineering & HALF THE COST copied cars was that the Chinese were able Technology Co. of Shanghai. to emulate the shape of a foreign car, but China’s indigenous auto makers are so Geely Automobile, which owns Swed- not its soul.” new many have not had time to groom their ish carmaker Volvo, turned to CH-Auto Chinese car makers tended to sift own engineers, and their best engineers are around 2005 for help on a project that led through a foreign vehicle to identify expen- usually occupied more with manufacturing to the Panda, now one of China’s most sive, non-critical features and functions to than design. Companies thus often out- popular small cars. CH-Auto was responsi- skimp on or eliminate, such as a door that source product design and development to ble for the exterior styling and engineering closes with a proper “thump,” as well as outside engineering houses filled with Chi- the underpinnings. The rest was handled by power windows and passenger-airbags. The nese engineers trained overseas. Geely, according to the two companies. result was often dubious quality and dura- Automotive analysts say these houses are CH-Auto and Geely made a clear de- bility. After a few years of use, bumpers and responsible for helping engineer seven to parture from copying with the Panda. To door handles would start falling off. eight out of every 10 cars China’s indigenous be sure, they still selected a car to emulate Dai says of the typical cheap knock-off car makers sell here. By using the same few or bench-mark – in this case, the Aygo, a

SPECIAL REPORT 3 CUTTING CORNERS China’s NEW THREAT: THE good-enough car

“city car” that Toyota produces in Czech Republic and has been selling in Europe since 2005. But instead of simply producing a fake Aygo, engineers at CH-Auto first studied and tested the Aygo and its components – often with the help of three-dimensional digital scanners – to collect data on their design and performance. Then they tried to manufacture components by adapting parts made in China to match desired functions and performance. If suitable local parts weren’t available, they worked with suppli- ers to create new ones by simplifying the scanned Aygo designs. The purpose was “not to copy but ap- proximate the Aygo,” Dai said.

PANDA’S UNDERPINNINGS One example is the Panda’s chassis. The under-body carriage, which the suspension and wheels are attached to, is key to how a vehicle handles corners on the road. The Aygo, which starts at 6,462 pounds EXPORT MACHINE: China is expected to sell one million cars overseas this year. REUTERS/Carlos Barria (about $10,000) in Britain, has a relatively sophisticated under-body structure formed in a single piece by using a process called the acronym for noise, vibration and harsh- with “roughly half ” the Aygo’s cost, accord- “hydroforming,” in which pressurised water ness, the key attributes of drive feel. ing to Dai. is used to shape metal. For the Chinese this Dai’s engineers tweaked the Panda’s ELIMINATING “MAJOR RISKS” was a problem. suspension, adjusting the so-called rubber CH-Auto and its chassis suppliers have bushes, or isolators, to make them softer to Despite the advances in design, safety stan- no proven know-how in hydroforming. better absorb shocks and vibrations. dards in Chinese-made cars still lag those And the light-weight steel that Toyota uses Despite using cheaper materials and of U.S and European manufacturers, in for the Aygo’s under-body carriage was too processes, Geely and CH-Auto were able part because its government doesn’t impose pricey for Geely to use in a car to be sold to largely match the performance of the as stringent a body of safety requirements. in China. Aygo’s platform in terms of the vehicle What’s more, Chinese car makers ig- Geely and CH-Auto’s solution was to handling and NVH, which Dai says was nore what they consider minor, non-critical use cheap “everyday” steel commonly avail- confirmed by a third-party testing compa- risks, such as using far fewer crash tests able in China, Dai said. Geely and CH- ny. More important, by tweaking the design with dummies. Auto divided the Panda’s chassis frame into and using cheaper materials and manufac- “If the client only gives me two-and-a- two pieces – upper and lower units – to turing processes, Geely and CH-Auto were half years to design a car, then I can only simplify their structure so they could be able to produce a platform for the Panda eliminate major risks. And the smaller easily stamped rather than using the more risks, well, there’s nothing we can do,” says expensive hydroforming method. Then It’s not copying. It’s not that CH-Auto’s president Wang. Geely welded those two pieces to create a simple anymore. China does have vehicle safety stan- chassis frame for the car. dards, and any automaker launching a new “The problem was our solution compro- Wang Kejian car needs to meet them. But there is no re- mised the Panda’s NVH,” Dai says, using president of CH-Auto quired number of crash tests.

SPECIAL REPORT 4 CUTTING CORNERS China’s NEW THREAT: THE good-enough car

Geely and CH-Auto do not want to do REUTERS TV See the video http://link.reuters.com/jys22t as much crash-testing as global automakers because creating prototype cars costs up to 2 million yuan a car ($316,000), CH-Au- to’s Wang said. A Geely spokesman, Victor Yang, would not say how many crash tests Geely con- ducted on the Panda. But Yang noted that the Hangzhou-based auto maker conduct- ed “more than what’s typically performed in China.” For cars being developed today, it routinely conducts more than 70 crash tests, Yang says. By contrast, an established global player such as Toyota routinely tests a new car by crashing it a “minimum 120 to 150 times,” according to a Toyota chief engineer who spoke on condition of anonymity. If the car is sold in many different markets around the world, Toyota crashes even more cars, he said. The advent of the good-enough car is THE ROAD AHEAD emboldening Chinese auto makers to build Nevertheless, the Panda is a watershed $316,000 up their own product development capa- product for both Geely and CH-Auto. The The cost of creating one prototype bilities to rely less on CH-Auto and other car’s stylized exterior - featuring a Panda- car in China. independent engineering houses. eyed grill and tail lamps in the shape of Geely, one of China’s top indigenous car paws – was considered cute and timely makers, is expected to sell about 370,000 when launched in 2008 to coincide with vehicles for Changfeng, an auto maker af- cars in China and 90,000 abroad this year. the Beijing Olympics. filiated with Japan’s Mitsubishi Motors. By 2016 the company forecasts its export The exterior contrasted with the car’s The Changfeng projects then led to deals volume will hit as high as 300,000 or pos- highly utilitarian interior, including ex- with Jiangling Motors Co. and Chongqing sibly 400,000. posed screws and a plasticky dashboard. Co., as well as Bei- “My vision,” said Geely Chairman Li The 1.3-liter, 86-horsepower motor pulls jing Auto. Shufu, “is to sell outside China the same the Panda from a standstill to 100 kilome- One of CH-Auto’s upcoming models is number of cars we sell within China.” tres an hour in an unthrilling 13.1 seconds. a Beijing Auto vehicle based on technol- Nor is the Panda, like other no-frills Chi- ogy the company purchased from the now Additional reporting by Hui Lee nese cars, ready to meet the stringent safety defunct Saab of Sweden. regulations of Europe and America. CH-Auto also has a major contract But there is one very eye-catching thing from Dongfeng Motor Co. – the 50-50 FOR MORE INFORMATION about the car: its price. A new Panda starts between and Dong- Norihiko Shirouzu around 40,000 yuan ($6,400) in China and feng Motor Group Co. The team will de- [email protected] about 5,000 euros ($7,400) abroad. velop a subcompact car based on the Nissan Bill Tarrant, Enterprise Editor After the Panda, CH-Auto’s business March (known as the Micra in Europe) to [email protected] began booming. It developed or helped buttress a new “indigenous” brand called Michael Williams, Global Enterprise Editor develop a slew of cars and sport-utility launched in China earlier this year. [email protected]

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