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EP 21: China Auto Rising
33 Plays1 month ago
This China-focused episode was born when pulling on the red thread connecting four prior episodes with elements of that nation’s automotive rise. This time, host John Stech stitches together the story of China’s rise in the automotive industry from the humble beginning to the current achievement of largest automotive market and biggest net exporter of cars using the words of experts that have worked there. .
Drawing on insights previously shared by Dr. Susanne Lehmann (Volkswagen Malaysia), Dr. Helmut Grösser (Mercedes-Benz), Benny Oeyen (Automobility, previously GM Shanghai), and Gianfranco Pizzuto, CEO Automobili Estrema, the individual elements of their stories were woven together into a flowing tale.
It begins with an auto industry that was in an infant stage, starved for manufacturing, logistics, and technology knowledge. It follows through to explore how traditional automakers were forced to adapt their products for Chinese consumers. The tale takes a twist when the alarm was sounded a decade ago that the Chinese automakers would eventually rise up as a threat.
The episode also examines the culture in China and what makes it so able to learn and move quickly in adaptation. Finally, there is a word of advice shared by one of the experts, Gianfranco Pizzuto, one which may surprise some.
There is no question about the rise of China in the automotive industry. This podcast episode just scratches the surface on the many issues and factors that led to this point. However, it is a great starting point to continue learning about the greatest competitor the automotive industry has faced to date.
To learn more about The Auto Ethnographer please visit the website at https://www.auto-ethnographer.com
Dr. Susanne Lehmann. Volkswagen Malaysia https://www.volkswagen.com.my/
Dr. Helmut Grösser. Mercedes Benz AG https://www.mercedes-benz.com/en/
Benny Oeyen. Automobility Ltd. https://automobility.io/
Gianfranco Pizzuto. Automobili Estrema https://fulminea.com/
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Transcript
Introduction to Global Automotive Focus
00:00:00
Speaker
America was like, yeah which plants are we gonna like, are we gonna be able to fill it in Europe was for like, which plants are we gonna close? And in China is what how many plants are we gonna build? Right?
Introducing 'The Auto Ethnographer'
00:00:11
Speaker
Hello, and welcome to the auto ethnographer. I'm john Steck, your host on this journey. We travel the globe to bring you stories about culture and the global automotive industry. Fasten your seatbelt. And let's get started.
Revisiting China's Automotive Development
00:00:24
Speaker
Hello and welcome to this week's episode of the Auto Ethnographer. Today, we'll take a more holistic view on China while looking back at some of the conversations we've had over the past few months.
China's Auto Industry Evolution with Dr. Lehmann
00:00:36
Speaker
It's almost impossible to turn on the news nowadays without, at least in the auto sector, hearing something about the development of China and the rise of the Chinese automakers. Some of our past guests between Dr. Susanne Lehmann of Volkswagen, Dr. Helmut Grösa of Mercedes-Benz, Benny Oyen, then from General Motors Shanghai, and Gianfranco Pizzuto, the founder of Automobili Estrema, they see that there's a clear and red thread in the story of China in the auto industry since the early two thousand
00:01:13
Speaker
I will have these leading experts walk you through the story in their own words and based on what they experienced.
Early 2000s Industrial Growth in China
00:01:19
Speaker
These are all clips that have been previously played in the episodes that were dedicated in full to conversations with these experts.
00:01:29
Speaker
But let's start in the early years. Dr. Susanna Lehmann moved to China with Volkswagen to develop the logistics aspects of their production and their supply chain. This is in the very early two thousand s It was really like ah feeling very welcome, very um open arms for our knowledge, for also the connections to the headquarters that we could offer.
00:01:55
Speaker
And yeah people really were grateful because we had a situation where we made like this a big jump we developed from three factories around Anting where the site for off Shanghai Volkswagen's headquarters is.
00:02:12
Speaker
We still produce the Santana, perhaps compared to the Volkswagen Beetle, the car that was responsible for China's industrialization.
00:02:23
Speaker
and We really did it in a very manual process.
Logistics and Supply Chain Advancements
00:02:29
Speaker
We did ah then really do this big development over three years from 2004 to 2007, where we introduced modern processes, IT t systems, already the first steps into digitalization with all the knowledge that that we could bring into these things. And we were super astonished how flexible the Chinese colleagues are, even at that time already much more flexible, perhaps than nowadays. These were the wild East years where everything was possible, everything was developing.
00:03:07
Speaker
And yeah we really had a great time. um It was really the beginning of the industrialization and the massive growth of the Chinese auto industry.
00:03:19
Speaker
How did they learn? it was really learning by action or did you have a lot of, let's say kind of one-to-one conversations? how How did that process and that knowledge transfer work? It was really literally um like,
00:03:34
Speaker
putting things on the floor, for example. I remember one visit to, i I don't tell the name of the company, of course, but one of our really big supplier companies and they were putting bumpers just outside in the yard.
00:03:50
Speaker
so and but it was not because of, they didn't want to, they did not have the understanding of quality focus of, um things that were necessary at that time. it was really just talking to them, explaining why we should do things. And they were pretty ah comprehensive, taking up all of the suggestions that we might, if they found them useful.
00:04:13
Speaker
If not, you could say what you wanted. That was a no-go then. But usually anything useful was accepted. As an expert in logistics and and planning, when when you arrived there, how would you compare the status of of where they were when when you first arrived in the early
Chinese Luxury Car Market Dynamics
00:04:35
Speaker
2000s? mean, was was there ah what you would even consider kind of um a modern you know like approach to logistics or supply chain?
00:04:44
Speaker
We had warehouses, um I think 46 warehouses in total in the villages around Anting. And I very often had to talk to the village boss or Communist Party boss of the village in order to speak about but what we needed, what our but expectations were.
00:05:02
Speaker
And we had mostly ladies working in the warehouses still with one, two, three, four, five, so paper tags. and petroleum lamps. But this was really just at the beginning.
00:05:15
Speaker
As I said, after three years, we worked with them, we introduced the SAP warehouse management, transport management, and we had a logistics center, and this took only one and a half years in total to establish it.
00:05:29
Speaker
Those were from the early days. And even as the automakers adapted to the manufacturing reality of China, They also had to adapt to a customer base that was vastly different from what they knew in their home markets.
00:05:42
Speaker
Here, Dr. Helmut Grossov, Mercedes-Benz, explains just how different the customers were and how they had to rethink their products. And the the successor even was primarily built around Chinese customers.
00:06:00
Speaker
The interesting thing with the Chinese customers at that time was they didn't fit into a the mindset you had so far. the Germans, the Americans, or in other markets as well. It was this.
00:06:16
Speaker
I have been working a long long time. I have been successful. I have made it to the top. And now I reward myself by buying an S-Class and, of course, also showing off.
00:06:33
Speaker
that I have been, that that I am there, that I made it.
Challenges for Foreign Car Makers in China
00:06:39
Speaker
but Slightly different to the BMW world where you more wanted to show I'm climbing up, I'm on my way up.
00:06:46
Speaker
With S-Class, you clearly demonstrated i am there. So traditionally, elder people in the 40s and the 50s who bought these cars. If you look at China, totally different clusters now happening. On one side, the ones who who are linked to, somehow were linked to the party, to the political party, to the communist area, who got in time, whatever, were owning some and
00:07:23
Speaker
big company working closely linked so to to the Communist Party. and the On the other hand, you had the young technology, new technology founders, entrepreneurs.
00:07:42
Speaker
There were people in the twenty in the twentyent s when you asked them, so now you have bought an S-Class, what was the car before? They told you, I didn't have a car before. It was my first car.
00:07:56
Speaker
And when you then asked them, What is it what you are looking for? but What is an S-Class for you in your market?
00:08:07
Speaker
the It was primarily, um this especially for the the older ones, for the ones linked to the Communist Party, it was, I want to sit in the rear, want to relax, want to have, don't understand why you care about the driver's seat.
00:08:30
Speaker
a You can build in whatever you want. It's just a driver sitting there. I don't understand your German mindset of of optimizing a car from the driver's seat coming.
00:08:44
Speaker
Just optimize the rear area. Put in luxurious materials. Put in comfort as much as possible. Space. some entertainment.
00:08:55
Speaker
I just want to feel comfortable when I'm driven from from space to space. From the younger ones, there were Also, at that time, a lot who were using chauffeurs had their drivers.
00:09:12
Speaker
um But at least on weekends, they were driving themselves. They had their family in the rear. And they also said, ah I need space. I need luxury in the rear. you have to focus far more on the rear.
00:09:29
Speaker
And I don't really care this much about the latest technology, what you know from but whatever, German or American customers.
00:09:44
Speaker
So different world, interesting enough, and of course, different requirements for engineering and for positioning of the vehicles.
Competitive Edge of China's Auto Industry
00:09:55
Speaker
While foreign manufacturers were allured to what would one day become the world's largest automotive market, they had to make compromises for market entry. Requirements were set on foreign companies, not least of which was technology transfer.
00:10:12
Speaker
Benny Oyen, then of General Motors Shanghai, talks about the rising threat as he saw it as early as 2015. Now China has changed a little bit after COVID, etc. But you have to think back in 2013, 2014, this was 2014, China was the hot ticket town.
00:10:27
Speaker
ah china was the hot ticket in town um If you said in any car company or any company in the world, we have a senior or mid-level or senior position, which was the case in in in my case, available in Shanghai, you had 50 people lining up at the door of HR who want to go.
00:10:46
Speaker
That's very different now. And now there's nobody. There's very young people or very old people. But people with families don't go anymore because they're afraid to something might happen or there there was just like this oh my god with with two with what happened with covid and dynamic zero policies there anyway so this was the hot ticket so there were policies in place i know uh in in some oems that uh if you have no china experience you can never get a c-suite job that's it it's logical it's the largest car market in the world and fast growing etc so
00:11:19
Speaker
if that's for cars now, but it's probably the largest market for anything in the world. And if you don't have exposure, you don't know your largest market. I mean, then you you can't be a C-suite guy, right? Or c C-suite person.
00:11:32
Speaker
and um with ah joint ventures, right? Very different also. ah You had joint venture. That's how how China set up their their business. was a long-term plan that started 20 years before, something like that.
00:11:44
Speaker
You had to have, they first protect their market, right? Because that was the only thing they had on offer is their large market with high tariffs. Then you come and produce there. Then they say, you can produce here, but it has to be a joint venture.
00:11:56
Speaker
And then the government said, but just production there is not enough. You have to also do value-added stuff here. like R&D. So we put up on a huge R&D, also joint venture. And at the time, by the way, you can never be de bo only forty nine percent fifty one is is the is the minimum for the Chinese partner, 49 for the Western partner.
00:12:18
Speaker
So Volkswagen, Tenor Motors, we set up giant operations there with wind tunnels and design centers and labs and things like that. And we taught them everything. We taught them everything.
00:12:29
Speaker
They know because they didn't know anything and they wanted to go fast and that's the advantage i would say of the political and the society and the economy system economical system in china don't get me wrong i'm not propagating anything i'm just analyzing is that you can do long-term stuff ah you don't have every four years in election and one goes right and then the other one goes left and says the previous one was totally ridiculous and then the other one comes in You don't have all this razzmatazz. In China it's very long term and then you can go fast and create wealth and create industrial might very quickly because you have consistent policies and the government and the the the companies work hand-in hand in hand and not against each other and not changing direction every four or five years.
Cultural Shifts in Valuing Foreign Expertise
00:13:13
Speaker
It was um basically a very profitable business ah for the American car and the Western car companies. But I remember And I was not, after that, I was not very popular, or at that moment, I was not very popular with the the American Mansion, General Motors, standing up, doing a presentation, which is something that I like and I'm pretty good at, I should say, about the motor show, the Shanghai Motor Show, to all the staff, there were like 200 Chinese.
00:13:42
Speaker
And I had one slide, and I called it The Red Dragon is Coming. And I predicted back then, that was 2015 or something like that. I saw the first seeds of these Chinese manufacturers, how they were getting better with their own brands, their design, etc. I said, this is something you will not be able to stop.
00:14:06
Speaker
These guys are going to come. And then the CFO and my boss at the time, Benny, so pessimistic. We're going to sell Buicks and Chevrolet forever. Well, i think again, look at it now.
00:14:17
Speaker
the All the Western manufacturers have been basically booted out of the top 10 and have are really struggling because the Chinese brands and the Chinese technology, and especially with BEVs, this is coming up. So very interesting.
00:14:32
Speaker
Now that the Chinese manufacturers and staff had access to and learned the modern way of developing automobiles, they set about at heart pumping speed to develop their own industry.
00:14:43
Speaker
Here are some observations from Dr. Susanna Lehmann, Benny Oyen, and Gianfranco on the speed of development. In the second stay that I had, they were already like frocklepping us in in order of processes, of systems of digitalization especially.
00:15:04
Speaker
Well, let's go ahead and and take that next step and and talk about your return to China. I know you did many things, important things in between, but it's a logical jump to talk about your return to China.
00:15:17
Speaker
What changed? How did the people change? How did the technology change or the processes, as you just mentioned? Well, um as I said, they pretty became ah pretty experts in our process and also pretty focused on quality management, on improvement cultures, on documentation.
00:15:40
Speaker
so And they became experts in these things. So when we first arrived, we were the ones like a little bit semi-God-like, ah considered as the um person with the knowledge.
00:15:54
Speaker
and the relations, second time completely different. I mean, we were still very much welcome and accepted, but more as a partner, ah equal partner than a teacher or a semi-go, nothing, nothing of that anymore. So ah even then later in the COVID time, you might have heard that foreigners were considered as not ah following the rules or ah bringing the virus,
00:16:24
Speaker
being a risk um source. And this really was showing me how that what has changed over the years, first from being a semi god to being a perhaps equal partner, then becoming a risk, a potential risk person.
00:16:42
Speaker
This was really like I think many of us that had this experience over the time perceived this development. Of course, it's not nice, but I think it's also a natural development that any country in this development scheme ah follows.
00:16:58
Speaker
Just that China did it so much faster than any other country that I know about.
Impact of Digital Integration on Auto Technology
00:17:04
Speaker
um But then when I really came back for work, for living there in 2021, it was a shock.
00:17:11
Speaker
Especially ah a many, many new OEMs that rose, um new brands like Avatar, just to name one, or ah Neta, or BYD, all these big names, or Xiaopeng and so on.
00:17:29
Speaker
So... names that were nearly not known in the West at all. And then, especially after COVID, we saw the cars that were like coming up out of the nothing out of the COVID time, perhaps, and were really, really positively shocked by the good quality and the results that they have achieved in so short a time.
00:17:52
Speaker
Here, Benny Oyen observes the deep digital integration of everyday life of the Chinese integrated with their vehicles. In America, was like, yeah which plans are we going to like, are we going to be able to fill it? In Europe, it was like, which plans are we going to close?
00:18:09
Speaker
And in China is what how many plants are we going to build? Right. So it was a very difficult. It was still on the up. Everything was booming. ah It changed also a little bit, but ah you could you could tell already. And a few observations when I came there. So you think about China like, oh, my God, they're going to be so behind. It's going to be primitive, et cetera. Forget it. there Even in 2014, I already went to China business before when you live there.
00:18:39
Speaker
You think you're so advanced with your American way of we living and then you see there's a whole world out there that you don't even know. I still remember like, oh, here, credit card, you take credit cards, right? And they went like, oh, no, no, no. And I thought, oh, my God, going to be cash. No, no, no, no. They already paid by phone.
00:18:56
Speaker
An American in 2015 had no idea what it was paying by phone. Like, we thought we were so advanced with our credit cards. Chinese were already... That's already called an old hat. So digitally, extremely advanced, ah very into that.
00:19:11
Speaker
And that is now translating into the vehicles. and If you look at at a Chinese vehicle, you could see that already coming. there the The Chinese have never had this
China's Blend of Communism and Capitalism
00:19:22
Speaker
ownership experience where everybody owns a car, etc. Because they were too poor when we already had that in Europe and in America.
00:19:29
Speaker
And they immediately went to like ah mobility 2.0, right? they They own cars, they do, but they use a lot of ah Uber is not there, but they have their their own Ubers, let's call it like that.
00:19:40
Speaker
They're huge users of that. um Uber Eats, etc. i'm like This was not existing yet in in in the US. It was already there. They were called Sherpas. You could order online and you had this orange ah colored overall,
00:19:55
Speaker
ah people on their little electric motorbikes and they went to any restaurant that you want and brought you the food at home and things like that. Things that I've never seen before. So they were this digital um connection with the real world and service economy, etc. They're very, very into that.
00:20:12
Speaker
And you can see that now in in their cars. I mean, they learned everything from traditional car making from Volkswagen, General Motors and all the others. And they're now good at it. They hire good designers, they have great design, et etc. But you should see the interfaces of the Chinese cars now. If you go, you should really go to the Shanghai Motor Show. It just passed, it was in April.
00:20:36
Speaker
But to other ah motor shows and look at some of these Chinese vehicles. it's It's phenomenal. It screens everywhere. It's interactive. You can do whatever you want. They're really, really advanced. So they're software defined. So you have a software as as the base and you build a car around it where the European way, it's normal and the American way is you have a vehicle and then you add some software and digital services to it.
00:21:03
Speaker
Gianfranco Pizzuto is amazed at the current status of development and the speed which brought the Chinese to this point. By the way, this morning I had a coffee with a friend. He said, so what how would you describe in China? i said, well, it's...
00:21:20
Speaker
My impression is that they are from technological standpoint, from some advancement of society, etc. They're probably 20 years ahead somehow from Europe at least.
00:21:35
Speaker
But I think they they' are smart ah leadership. They have a very very smart leadership because Most people think that the Communist Party is a party. It's not a party. is not the It is an assemble of managers, top top top managers, which is a very tiny part of the ah global population of of China, which is 1.4, maybe close to 1.5 billion people right now. So it's a very tiny part. it's ah
00:22:07
Speaker
It's an elite that you have access to this elite if you're good. What I can say, what I can see is that they took the best of capitalism and the best of communism and blended.
00:22:23
Speaker
It's the only country where you see... I have i haven't seen a country in the entire planet that has this blend of total... you might think that this it is completely impossible that communist and capitalism could
Cultural Openness to Innovation
00:22:45
Speaker
live together. right Well the Chinese did it and I think part of this is that China exists since 4 000 years.
00:22:57
Speaker
They have a culture that goes back 4 000 years. okay And I think this is the strength of China that are capable because they through the 4,000 years they had up and downs, then they have the Mongols coming in, and then they had the Westerns, they had the Japanese and then the Russians etc. et cetera But they were always capable of getting back and rise. On Sunday I was visiting Xiaomi.
00:23:26
Speaker
the Three years ago nobody knew that this tech company making smartphones and making um TVs and making heating device and vacuum cleaners and washing machines.
00:23:48
Speaker
you know So ah what is Xiaomi? Xiaomi is Dyson, Apple and Tesla together. And they do it in such a fast pace, I was able to get into the showroom where they just presented the Xiaomi SU7 Ultra.
00:24:11
Speaker
And believe me, a $70,000 car with 1,500 horsepower with such a performance, 350 kilometers an hour of top speed, packaged in a family car where five people can fit easily.
00:24:32
Speaker
Well, this this is something I have never seen in my entire entrepreneurial life ah that somebody coming out from nothing within three years developed a car at such high level.
00:24:48
Speaker
and That's the their first car. Is there something special about the Chinese culture that allows them to develop like this? Is there a different mindset? The following observations only scratch the surface of this question, the point at some of those differences.
00:25:05
Speaker
What I still like very, very much about this culture in China is they are experimenting. They're not like Germans perhaps do, like searching for the problems in advance or looking for, yeah, perhaps arguments to avoid ah innovation.
00:25:26
Speaker
No, the complete opposite. They're going for it, trying, experimenting. If there is a failure, there is, and then they try another way. It's not so bad and it's not a catastrophe.
00:25:38
Speaker
ah Always, of course, following the rules of safety, but they they are really much, much more open to innovations in total, in private life with all the digitalization going on, but also in the factories.
00:25:51
Speaker
I think in in China, it's this learning culture. We talked about it earlier, the the people, even really, really old people over 90 years old, try to constantly optimize themselves, try to keep training, keep their body and mind fit.
00:26:06
Speaker
And I think this is what we also see in the factories. They always want to get better. They don't give up if they don't find a technical solution immediately. They go on and on and on until they
Collaboration vs. Isolation in Auto Industry
00:26:18
Speaker
have it.
00:26:18
Speaker
ah From a cultural point of view, I thought China was fascinating. Again, very different to Japan and very different to Korea. ah In certain ways, more modern.
00:26:31
Speaker
And this is shocking because you think like, oh my God, a communist country, they've been asleep forever. and And that's like the common perception. It's not the communism. Sometimes I'm not a fan of communism at all, but has some, like I said, everything I see in a young pros and cons has some advantages. One of the advantages is the position of the woman in Korea and in Japan.
00:26:55
Speaker
When I went to Korea, even in the United States, I looked around me, a lot of very good-looking young girls, but never once, 30, 35, you didn't see any. They were all guys. They come there, they work, work, work, they meet, they get married, and then the women stays at home.
00:27:10
Speaker
very 1950s traditional way of thinking. In China, you sit across very senior people from SAIC with 50-year-old women. So I kind of liked it. I thought that was a very interesting aspect.
00:27:27
Speaker
And that's because of their communist heritage, where the communist... Philosophy was you have to work for the state and to make China great and to make society great. And everybody has to contribute. So also women, which is actually quite, quite logical. So I thought that was quite interesting.
00:27:42
Speaker
ah Second difference was I felt ah is they were very open to learn. very, very, very open. They were very willing to learn. They knew they came from nothing. They knew they have to go fast and they are willing to take input from everywhere. So you never heard like, yeah, but this is why we do it in China and we don't care.
00:28:07
Speaker
so So maybe sometimes you heard that a little bit in the Japanese way or the Korean way. in china you never had this this this arrogance like we are we know everything i found them quite open uh but also very focused and then you know the hard work the hierarchy when the boss says something that's it and you do it um that is the same that is that that runs through them in conclusion the chinese auto industry has developed into a daunting competitor to traditional automakers
00:28:38
Speaker
Their way of working is different. Their long-term focus differs from Western automakers.
Conclusion: Call for Collaboration with China
00:28:44
Speaker
And their willingness to take risks and try new things sets them apart. I think that Gianfranco Pizzuto sums it up the best.
00:28:53
Speaker
I'm sincerely convinced that if we have a chance, we Western, we want to have a chance of being able to compete is by getting to work with them.
00:29:07
Speaker
together and not banning them with the tariffs etc etc and isolating o ourselves. So ah my fear is that if we continue to put up this kind of fight, this terrorist fight, is that we are becoming the the the new communist in sense that we want to block the others to come in and show us how things could be done.
00:29:31
Speaker
I hope this provided some insights into the rapidly developing Chinese auto industry and the culture that drives it. It only scratches the surface here, but it's a good start for those in the West that are drawing up their strategies for surviving and even thriving.
00:29:49
Speaker
Until next week, keep on driving.
00:29:54
Speaker
Thank you for joining us on today's journey. Please remember to like and subscribe to The Auto Ethnographer and leave us a rating or comment. For more information, visit our website at auto-ethnographer.com.
00:30:06
Speaker
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