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Chinese motorcycle industry finally faces consolidation


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I have previously written about the need for the Chinese motorcycle industry to consolidate in terms of the number of motorcycle manufacturers operating and exporting. With the ban on motorcycles in urban areas and dropping export figures (mainly caused by Indian competition and cheap cars) the industry can no longer sustain the 200+ motorcycle manufacturing companies that it once boasted. To put it in to perspective, India has just 6 motorcycle manufacturers that are Indian owned and of course Japan has 4.

In post war Japan in was a bit different as arms factories seamlessly turned themselves in to motorcycle manufacturers (as they have done for decades, must look in to that one day, something to do with tubes I imagine). But in Japan the government took a sensible approach and issued motorcycle manufacturing licences to but 4 companies, the rest would have to adapt and have successfully with Bridgestone being the obvious example of a motorcycle manufacturer changing its projects (to the tyre industry).

There have been no such policies thrust upon Chinese motorcycle factories but we are now seeing the demise of many of the smaller motorcycle plants. Many of the smaller factories are simple single production line assembly plants. These companies do not make anything and cannot really be considered as OEM companies as they basically cobble together parts from other companies. They generally produce and sell to developing countries, mainly on the African continent, and have increasingly struggled as the customer base evolves from ‘the cheaper the better’ range of these factories to a more quality and value based philosophy.

Although this consumer philosophy change has rung the death knell for many Chinese motorcycle companies as many of them have just moved on to other related industries such as the electric bicycle/ scooter and electronic component industries.

As the bigger Chinese motorcycle manufacturers have had to step up a gear to compete on markets with the likes of Hyosung (South Korea), Kymco (Taiwan) and Hero, TVS and Bajaj from India the smaller and middle sized factories have been unable to and have felt the full force of the downturn.

It’s not all bad news for the smaller factories as many of them have adapted their existing supply chains to aid them in setting up new enterprises in emerging and evolving markets. Harry Po is the owner and CEO of Leng Feng Scooters, a small scooter producer and exporter from Zhejiang province. He reports “we used to enjoy really good trade, especially in the export business. Our scooters were exported to Laos, Cambodia and Burma mainly but then the market got saturated and our export orders decreased by half. As the export figures kept on decreasing I made a decision to get out of that particular trade while I still had money to invest in another avenue of the industry, it was a good move. In summer of 2015 I started to manufacture electric scooters. I had all the supply chain contacts to produce scooters so I adapted our business model and began to manufacture electric scooters which has proved to be a really good business so far and has opened up the domestic market to us again as well as continuing to export to countries like Laos and Cambodia.”

Sales and exports of the bigger motorcycle manufacturers are also taking sizable hits but they have steadied the ship by seeking western markets where Chinese commuter motorcycles are becoming acceptable and popular. The leap in quality required to service these markets means that there is a much bigger profit for the manufacturer in each unit which helps to balance the loss of profit from selling less motorcycles.

It’s now quite clear that the only growing motorcycle manufacturers (in terms of unit numbers) are the companies with joint-venture agreements with foreign motorcycle manufacturers, mainly the Japanese (Honda in particular). This has caused other Chinese factories to reach out abroad in the hope of securing the sort of partnership that is making Sundiro Honda and Wuyang Honda very successful motorcycle manufacturing companies.

Other big motorcycle companies are expanding their range and including mini vans (becoming increasingly popular in agricultural areas) and other products in their repertoire. Chongqing company WangQiang are the biggest producer of cub motorcycles in China with cubs making up 95% of their production numbers. They have recently developed and produced snowmobile models that are proving to be very popular and claim that they will continue to develop new products in order to keep moving forward.

Many of the bigger Chongqing motorcycle manufacturers have interests outside of the automotive manufacturing industry choosing to invest in Real Estate or even turn in to loan companies. Famously Lifan own a football team (Chongqing Lifan FC).

It could well be the case that the demise of the smaller manufacturers will herald the further evolution and success of the bigger factories as competition on foreign and domestic markets lessen. Time will tell on that one.

 

 

 


March 11, 2016
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