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Wednesday, November 14, 2018

Despite Slowdown, Auto Industry Exec Sees Opportunities in China

November 14, 2018. Shanghai – More than 100 alumni, students, and friends of CEIBS gathered today at our Shanghai campus for the latest CEIBS Master Class on Globalisation, Innovation, and Industrial Excellence: Key Pillars of a Profitable Growth in the Automotive Industry. Hosted by CEIBS Vice President and Co-Dean Zhang Weijiong, the event was headlined by Compagnie Plastic Omnium Chairman and CEO Laurent Burelle.

Plastic Omnium is a world leader in intelligent exterior systems, clean energy systems, and modules for the automotive industry. The company operates 122 plants and 24 R&D centres worldwide, including nearly 30 facilities throughout China. Among other things, Plastic Omnium assembles front-end bumpers for Chinese automotive manufacturers. As such, Mr. Burelle explained, the company plays an important role in both quality assurance and risk management.

“We’re in safety products, where you’re allowed zero bad parts per million of deliveries,” he said. “Our customers don’t want to have expensive recalls. They’re expensive in terms of money, in terms of image, and in terms of market share. Every day you see companies making recalls – sometimes one or two million units – because of poor quality.”

He also spoke about the future of the industry, presenting both the challenges ahead and the opportunities. Despite present demand, he predicted that front-end bumpers and other similar lines of business might actually be dead in twenty years. On the other hand, he also believes the automotive industry is at the beginning of an exciting evolution.

“If there are autonomous cars in the future, then there are no accidents, so there is no need for bumpers,” he told the audience. “[But] you can redesign and it will be a fantastic time for designers and for modularity. There will be a lot of excitement and a lot of big business.”

Mr. Burelle also made the point that, even in the current global economic climate, it is important to resist the temptation to believe that the recent slowdown in the Chinese automotive industry inevitably translates into a slowdown for modular suppliers. In fact, he said, as cars continue to evolve, he expects even more opportunities to emerge.

“In the future, body parts are going to be much more complicated,” he explained. “As a result, [growth] will not be through market share in terms of number of cars, but in terms of the percentage of content per car. The strategy will be content per car, not total number of cars.”

Although China represents only about 16% of Plastic Omnium’s current worldwide revenue, Mr. Burelle emphasised that it is a crucial part of the company’s overall plans. In addition, he highlighted some of the reasons why it is important for the company to maintain a large number of facilities in close physical proximity to their Chinese automotive customers in order to stay profitable and meet their customers’ needs.

“Theoretically, you can send a part for a three-day journey from Harbin to Shenzhen, for example, but cost wise it’s not smart,” he said. “Also, you can’t stack large parts. If you go above 4% logistics and shipping costs, then a competitor who has a plant nearer to the customer will win the business.”

With the Chinese automotive industry predicted to plateau over the next two or three years, Mr. Burelle also told the audience to expect dramatic changes to the landscape in a country where the number of automotive makers has recently climbed into triple digits.

“The market has to consolidate and the market will consolidate,” he stated. “A lot of brands will disappear and be absorbed by other brands. Some of them have already disappeared. It isn’t possible to split a 30 million car market between 100 brands. In the end you will have ten leaders.”

Today’s event is part of the CEIBS Insights 2018 initiative aimed at celebrating the 15th anniversary of the China-EU Comprehensive Strategic Partnership. Previous Master Classes have featured speakers such as former French Prime Minister Jean-Pierre Raffarin, Roland Berger CEO Charles-Edouard Bouée, and former Heineken CEO Gerard Van Schaik.

To keep pace with future CEIBS Master Classes and other upcoming events, visit the CEIBS events page here.

Writer: 
Michael D. Thede
Editor: 
Charmaine N. Clarke