Where did all the Chinese OEMs go?

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It seems that only yesterday the pages of Dealernews were loaded with ads from Chinese companies hoping to establish a beachhead in the North American market. They seemed to be signing up dealers everywhere, with the only qualifications being a pulse and the ability to pay for the units. There were seemingly no standards, and not a thought with regard to an infrastructure to support their “dealer” organization. Some “dealerships” consisted of a shipping container, a beach chair and an umbrella. It was a mess.

At the time I toured a few “distributorships” and, while a few made a serious effort at creating a viable distribution network, most were chaotic collections of various motorcycles, a jumble of parts and piles of uncrated, presumably incomplete bikes. The folks running them for the most part were sincere, but had no notion of how to market or sell powersports products and no budgets to run a proper warehousing, delivery, marketing and sales organization.

Franchised dealers across the continent were upset with the situation and not a bit shy about voicing their distaste for the products, and the way business was being conducted. Then all of a sudden, as if someone erased a giant whiteboard, they were gone. The ads ended, the Chinese presence at Dealer Expo diminished, and the Chinese motorcycle “invasion” dropped as a subject of discussion for Dealernews and as a point of contention for mainline dealers.

I was curious. I had thought the Chinese, like the Japanese before them, would eventually establish themselves with reliable products and distribution organizations. The Japanese, after all, had their teething problems as well. Had the motorcycle industry in China collapsed? There were rumors flowing through the ether that the government in China had determined that there were too many motorcycle manufacturers in China, and that the subsidy paid to motorcycle manufacturers by the Chinese government would be reduced or eliminated. In any case, I didn’t pursue the question.

THE INSIDE SCOOP
Then, the other day, I got a call from an associate, David Morris. Morris is an editor for Ultimate Motorcycling, a buff book focusing on the high-end of the motorcycle spectrum. He’s worked as a sales and marketing consultant in such diverse markets as Brazil, Russia and Eastern Europe.

David told me that he had recently attended a giant motorcycle tradeshow in Chon-qing, China, and returned with some interesting insights into what’s happening with Chinese motorcycle manufacturers.

To begin with, we need to get a grip on the size of China’s domestic market. China’s population is huge — 1.3 billion people. That’s almost 20 percent of the world’s total population vs. the U.S.’s 300 million, 4 percent of the world’s population. There are 95 million motorcycles in use in China.

Yamaha’s representative at the Chinese International Motorcycle Exhibition (CIMA) forecasted demand in 2010 to be at 16.5 million units. Honda of China alone has annual sales of 1.2 million units, vs. U.S. total motorcycle sales of something around a half-million.

When you start to add in the rest of East and Southeast Asia, Africa and Latin America, the numbers become almost staggering. Brazil alone had sales of 2 million units in 2009, Nigeria, 600,000; Indonesia, 7.4 million; Thailand, 1.9 million; and Malaysia, 250,000. The majority of the motorcycles and scooters sold in this market, as you’ve probably assumed, are 250cc or smaller.

With this kind of volume, it’s no wonder that the Chinese, at least temporarily have shifted their focus from the North American market, with its focus on big-bore, complex and expensive motorcycles to emerging countries whose demands in motorcycles are less burdensome. In some ways it’s like the Dollar Store vs. Nordstrom — what’s lost in high-end sales is more than made up for in volume, materials, labor and other elements that factor into the manufacturing of a motorcycle.

At the same time, European and American OEs are either selling or trying to establish sales organizations in China. Recently it was reported by Bloomberg News that Harley-Davidson sold 268 motorcycles in China last year — not many, but with the growing affluence of the Chinese, and their penchant for high-end consumer goods, Harley-Davidson is planning to sell many more in the future. There are currently seven H-D stores in China and Harley plans to up that number to 28 by 2016.

It seems to me that as demand for bigger displacement motorcycles grows in China, there will be pressure on domestic OEs to produce larger displacement, higher-end motorcycles for home consumption as well as export. Quoting the article in Ultimate Motorcycling, Zuo Zongshen, owner of the eponymous Zongshen Motorcycle company, “That we are not currently mass-producing high-performance machinery, does not mean we are not capable of doing so.”

As the Chinese domestic market grows, it’s only a matter of time before they begin to produce products that match the needs and demands of European and American riders. Modern technology is easily transferable and the latest manufacturing processes are readily available to anyone who wants to adopt them. China will return to the U.S. market, only with products and the kind of product and dealer support that was missing in the first go-round. It’s just a matter of time.

This story originally appeared in the Dealernews November 2011 issue.