COVER STORY: Article on China’s Automotive Aftermarket published in China Automotive Review

China Automotive Review, August 2017

Our recent article on the rise of China’s Automotive Independent Aftermarket was published as a cover story in the August edition of China Automotive Review.

Rising Opportunities in China’s Automotive Independent Aftermarket

Gao Feng Insights, May 2017

China’s automotive industry has entered a new phase where new car sales growth decelerates, while the car population expands and the average car age increases.  This brings enormous opportunities for expansion of the independent aftermarket.

In this paper, we examine the complexity of China’s independent aftermarket including the distribution channel and service shops.  We also examine the key success factors, market dynamics and emerging marketing channels in the independent aftermarket.  We will highlight the implications of these developments for key players along the value chain.

Bill Russo Speaks at 22nd CLSA China Forum

Tianjin, China, May 15, 2017

Title: China’s Auto Industry in the Age of Disruption  – The Birth of the “Automobility” Business Model


For global automakers and their suppliers, China represents the greatest opportunity for growth in the 21st century.  Since 2009, China has been the world’s largest market by volume, and surpassed 28 million units in annual car sales in 2016.  Over the coming decades, we believe that China will remain the key battleground for dominance of the global auto industry.  However, this battle will not be waged using the conventional automotive technologies which have been refined over the past century.  We believe several driving forces, which are particularly evident China, have the potential to disrupt the status quo of the automotive industry:

Bill Russo, managing director of Gao Feng Advisory Company, presents on Day 1 of the 22nd CLSA China Forum at The Ritz-Carlton, Tianjin on Monday 15 May.
  • The unique context of China’s urban transportation challenge, the high penetrationrate of mobile internet, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts, are compressing the time needed to commercialize smart, connected car technology and related services.
  • The automotive value chain is being disruptedby non-traditional players as they enter and compete to deliver mobility solutions.  Disruptive new entrants are utilizing big data to draw insights about customers’ mobility patterns in order to address their “pain points” and offer new solutions for their mobility needs.  Such mobility needs are increasingly being met through on-demand and shared services versus individual ownership.

It is the confluence of these forces, along with rapid innovation to address “pain points” associated with mobility in the China context, are positioning China as the catalyst to drive the transformation of the business model and technological underpinnings of the global auto industry.  In this course, we highlight the major disruptions that lie in the path to success in China’s automotive industry, including:

  1. The rapid rise of on-demand mobility and the digital mobility ecosystem
  2. The link between hardware innovation and the economics of the digital ecosystem
  3. The explosive growth of aftermarket services and the emergence of the Independent Aftermarket (IAM) and online-to-offline (O2O) channel

Bill Russo Commentary on Automotive Industry Mid to Long Term Development Plan

China Global Television Network, April 25, 2017

China’s automotive industry is entering a period where discontinuities and disruptions are likely to change the competitive landscape – and this represents an opportune time to guide the development in alignment with China’s overall industrial development.  With the issuance in April 2017 of the Automotive Industry Mid to Long Term Development Plan, the Ministry for Industry and Information Technology (MIIT) provides “guiding principles” for the development of China’s auto industry for next decade.

Bill Russo was a guest on CGTN’s China 24 program to discuss these developments.  His interview appears at the 28th minute of the program.

Click here to view the China 24 program

China’s thriving SUV-only automaker looks to global growth

ASSOCIATED PRESS  / Feb 22, 2017, 03:06 AM

By JOE McDONALD AP Business Writer

In this photo, taken, Feb. 19, 2017, a worker assembles a Haval SUV H3 model at the Great Wall Motors assembly plant in Baoding in north China’s Hebei province. Great Wall Motors became China’s most profitable automaker by making almost nothing but low-priced SUVs. Now it wants to expand into global markets. (Photo by ANDY WONG/AP)

BAODING, China (AP) — Wei Jianjun is the chief matchmaker in China’s love affair with the SUV.

A decade ago, the chairman of Great Wall Motors Ltd. saw opportunity as the bulky vehicles began shedding their image in China as a farm tool. Wei cut back on making sedans and poured resources into its fledgling line of Havals.

That gamble paid off as SUVs caught on with drivers who saw them as the safest ride on bumpy, chaotic streets. By 2013, with demand surging, Great Wall had become China’s most profitable automaker and Wei was a billionaire.

Now, Wei wants to make the Haval a global brand. It’s an ambitious goal that requires advances in safety and features for a company known until now mainly for low prices. Great Wall sells Havals in Australia, Italy and Russia, but exports were less than 5 percent of last year’s output of just under 1.1 million units.

“By 2020, we hope Haval can become the world’s biggest specialty SUV brand,” Wei said at a reception at Great Wall headquarters in this city southwest of Beijing to celebrate sales passing the 1 million mark.

That “globalization strategy” includes working toward meeting American safety standards, Wei said. But he gave no indication when Haval might export to the United States or major European markets such as Germany.

Great Wall is part of a cadre of small but ambitious independent Chinese automakers that grew in the shadow of state-owned giants such as Shanghai Automotive Industries Corp., which assembles vehicles for General Motors Co. and Volkswagen AG.

Without foreign joint-venture partners, the independents created their own brands and started exporting to Africa and Latin America.

Geely Holding Ltd., which owns Sweden’s Volvo Cars, plans to start U.S. and European sales of its new Lynk & Co. brand in 2019. BYD Auto, the world’s biggest-selling electric car maker, supplies battery-powered buses and taxis in the United States and Europe. Great Wall opened a European assembly plant in Bulgaria in 2012. It has similar facilities with local partners in Russia, Indonesia, Iran, Egypt and Ecuador.

SUVs have an outsized role in China, where their popularity has helped offset sagging demand for sedans and other vehicles.

Sales of domestic brand SUVs soared 58 percent last year to 5.3 million units out of total sales of 24.4 million in the world’s biggest auto market. They are growing fastest in the lowest price ranges, dominated by Haval and Chinese rivals. That has helped Chinese brands to claw back market share they were losing to global competitors.

The top seller was Haval’s flagship H6, starting at 89,000 yuan ($12,900), which has become China’s most popular vehicle to date. H6 sales surged 55 percent last year to 580,000 units while the overall market grew 15 percent.

“They are definitely one of the most successful car companies in China,” said Yale Zhang, managing director of Automotive Foresight, a research firm.

“This company has some very special strengths,” Zhang said. “Of course, it also has weaknesses, because their products are focused on one model. But they are correcting that. They have tried very hard to cultivate another star product.”

Great Wall’s 2016 profit rose 31 percent to 10.5 billion yuan ($1.5 billion) on revenue of 98.6 billion yuan ($14.4 billion). Wei, 52, ranked No. 36 on the year’s Hurun List of China’s richest entrepreneurs, with a fortune estimated at $5.9 billion.

Begun in the 1980s as a collective that repaired and modified vehicles, Great Wall was bleeding cash when Wei, then 26, left his father’s business making industrial machinery and signed a deal in 1990 to take it over and share profits with the collective’s members.

The company launched a sedan in 1993. Its popular Deer brand pickup trucks were its first hit, in the late ’90s.

Its CEO, Wang Fengying, is a former saleswoman who worked her way up the ranks, becoming the first woman to lead an automaker a decade before GM Chairman and CEO Mary Barra.

Wei has a reputation for military-style discipline.

“He wants a quick decision and a thorough execution,” Zhang said. “This style is very different from large automotive companies, which can be a huge bureaucracy. This company definitely doesn’t have that weakness.”

Most of Great Wall’s 60,000 employees work at its Baoding factory complex, a 13-square-kilometer (5-square-mile) mini-city of assembly lines and workshops in long, pale yellow two- and three-story buildings.

A test track that wraps around the complex is banked to allow drivers to push vehicles to over 200 kph (125 mph).

“It’s an orderly, organized, very disciplined operation,” said Bill Russo, managing director of research firm Gao Feng Advisory. “You think, this isn’t China; this is what I would expect to see in Switzerland or Germany.”

Wei has emphasized product quality, in one case hiring Korean auto industry veterans to show Great Wall how to make better body panels, according to Russo, a former Chrysler executive. That has paid off by raising Haval’s image from entry-level to a mass-market brand that can charge higher prices.

“They have cracked that glass ceiling,” said Russo. “Their quality level is better than the basic Chinese car companies.”

Still, Great Wall’s market is increasingly crowded as Chinese rivals roll out dozens of new SUVs. Global brands including VW and GM are preparing to invade Haval’s segment with their own low-cost models.

Competitive pressures have reached a “deep red level,” Wei said.

The company is responding by trying to move up-market.

Haval opened a Shanghai design studio in 2013 and a Technology Center in Baoding, housed in a sleek glass tower with reflecting pools and a 23-story lobby. It includes engineering workshops, a wind tunnel and a low-pressure chamber that can mimic operating conditions up to 5,000 meters (16,500 feet) in altitude.

In November, Great Wall unveiled a premium brand, Wey, an alternate spelling of Wei’s name. It has yet to say how it will attract buyers to models expected to be priced above 200,000 yuan ($29,000).

Haval has struggled to lure drivers to its higher-priced models, such as its top-of-the-line H9, a seven-seater starting at 210,000 yuan ($30,600), that sold just 11,500 units last year. The H8, another full-size model, sold only 7,500 units.

In November, the company rolled out an updated H6, designed by a 50-member team led by Pierre Leclercq, a Belgian-born BMW veteran.

“The H6 is an extremely important product for us,” said Leclercq, the company’s senior vice president for design.

The company’s next rising star is the H2, a four-seat compact SUV that sold 197,000 units last year. But it starts at 87,000 yuan ($12,700), a step down in price instead of toward a higher market segment.

Great Wall also faces pressure from Chinese government rules that require improved fuel efficiency by 2020. That will hurt brands such as Haval that lack smaller models to improve the average of their product lineup.

In response, Great Wall has developed an electric car, the C30 EV, a compact sedan it says can go 200 kilometers (120 miles) on one charge. The company has yet to say when it might go on sale.

Perspectives on the Future of Mobility and Autonomous Driving

by Bill Russo

I recently attended the Consumer Electronics Show in Las Vegas, where traditional automakers, suppliers and several technology firms were showcasing their vision of the future of mobility.  Of particular interest were the many demonstrations and announcements related to autonomous vehicles.  Early forms of this technology are finding their way into commercial applications in the form of “assisted driving” features which incorporate cameras and radar/lidar to provide the car an extra set of eyes to sense its surroundings and inform the driver of risks.  Rapid advancement of technologies needed to fully automate the driving process is also evident, indicating that robotic forms of transportation will be possible within at least 2 industry product cycles (5-10 years).

The following is a Q&A which offers a perspective on the future of mobility and the design and function of autonomous vehicles.

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  1. The Autonomous Driving (AD) era will allow for an entirely new driving experience for drivers and passengers.  How much of an impact will AD technology have on the comfort and convenience of driving?

Autonomous Driving will completely redefine the comfort and convenience of transportation.  In our current paradigm, comfort is designed around the driver and occupants in an externally focused manner:  with eyes to the road.  The space around the front seat occupants – both driver and passenger – is oriented to the information needed to manually drive the car to its destination. Autonomous vehicles will experience fewer accidents, over 95% of which are attributable to human error.  Cars can therefore be lighter, with less structure without compromising occupant safety.  Traffic jams will be less common since autonomous vehicles will be able to leverage vehicle-to infrastructure and vehicle-to-vehicle connectivity in order to avoid congestion and smooth the flow of traffic.

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  1. When you look back at the public’s embrace of big technology shifts – trains or commercial aviation for instance – to what extent was that shift motivated by the convenience of the new mode of transportation?

Convenience always shapes our choices when it comes to transportation.  Human beings are inherently explorers and some of history’s greatest inventions – wheels, bicycles, steamships, trains, cars, and airplanes – have allowed us to be mobile over greater and greater distances.  Over time, each of these inventions added more and more convenience-oriented features to make the experience of mobility more “painless”.  Mobility devices are themselves a convenience which allow us to get where we want to be without walking.  All forms of public and privately-owned transportation are solving this basic problem of minimizing our travel time.  Each solution became commercially viable by offering a benefit versus other forms of transportation that some people were willing to pay to either use or own.  For example, trains reduce travel time across a country from months to days, and commercial aviation reduced this to hours.  We can now circle the world by jet in a little more than a day, a journey the first explorers could not complete in several years, if they lived to tell the tale.   In recent history, owing to the invention of the internal combustion engine powered car (Carl Benz in 1886), and the moving assembly line (Henry Ford in 1908) the car became the primary means for the average person to satisfy their daily commuting needs.  In the increasingly urbanized world of the 21st century, we will experience the next evolution in convenient human mobility:  personalized, autonomous mobility on-demand.

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  1. What are some ways in which the Advanced Driver Assistance Systems (ADAS) technology already in the market, like cruise control, is increasing comfort and convenience for drivers and passengers?

Such technologies act as “support” systems for drivers which allow more tasks to be “delegated” to the car.  For example,  cruise control allows a driver to focus less on maintaining a constant speed and thereby improves the driving experience.  Routine or mundane tasks like parking or adjusting speeds while driving on highways are already becoming mainstream.  Lane departure warning, parking assistance, and cruise control are features that allow the driver to focus less on routine tasks and focus on the actual experience of driving.  Over time, the number of tasks that can be handled by the “smart car” will increase in order to reduce “pain points” of driving and making the overall experience more convenient, safer and therefore more enjoyable for the occupant.

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  1. In addition to the advantages of existing ADAS and autonomous driving technologies, what are consumers most focused on when it comes to comfort and convenience of fully autonomous vehicles?

With Autonomous driving, a new paradigm can be established to re-focus the passenger on how to productively use their transportation time.  Observing the outside of the car moves from a requirement to a choice – especially for the user of a mobility service.  Space that is allocated to providing driver information can be repurposed from a driver-passenger perspective to a “connected user” perspective.  Beyond mobility, a fully autonomous vehicle’s key benefit will be the experience it gives to the user, and the primary benefit which comes from delegating the task of driving to the car is PRODUCTIVE TIME.  As such, while the purpose of the car as a transportation device has not changed, the very concept of how to treat and offer convenience-oriented features to the occupant is different:  the autonomous vehicle is built with a “user-centric” mindset, as opposed to a “driver-centric” mindset.

An autonomous car, especially one used in longer-distance (>10km) commuting distances will need to be able to transform travel time into productive time through convenient services which may include infotainment (watching news/video, gaming), online communication (social networking, e-mail, conference calls), or online-to-offline services (discounts or promotions based on mobility patterns).  In the world of personalized, autonomous mobility on-demand, the car essentially becomes a connected rolling space that transports us between the places we live, work, and play.

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  1. What Autonomous Driving feature will consumers be most surprised by and also what core functionally will they gravitate to most?

For people born in the late 20th century, it will be difficult to reimagine this new form of mobility.  Most of us from this period see a car through a nostalgic lens:  our most prized possession outside of our home, and the one that we can take with us to showcase our lifestyle and aspirations.  For many, this will never change.

However, mobility is being revolutionized by digital technology.  The rapid emergence of ride-hailing services such as Uber, Lyft, Ola, and Didi Chuxing are transforming the car into a transportation service device.  It is in this mode that we can see a great fit for autonomous forms of mobility – as the operators of such services will benefit from not having to incur the cost of a driver, along with the lower maintenance and repair cost of autonomous vehicles.  Users of such services expect to be driven and are not seeking the driving experience in any case.

The most surprising aspect of this type of vehicle will be that it affords its users the opportunity to turn inward and use their time productively.  Future cars used for short commuting will be smaller and occupy less physical space:  they simply pick people up and drop them off and do this with minimal “extras”.  These will be summoned by an app on a mobile device.  Longer commuting will be done in autonomous vehicles which have spaces designed to address the productivity needs of the occupants:  with connectivity and consumption of content at the core.  Such cars may be booked or offered through a “subscription model” to give the users some flexibility in the service offering.  The shift in this paradigm will surprise people the most since these vehicles will be designed from a pure passenger experience perspective which will include how to entertain or delight the user during the journey.

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  1. Self-parking, one of the earlier semiautonomous features, is now found on many mainstream models and widely used by drivers. Do you think the public will adopt more complex autonomous features or a fully autonomous vehicle in the same manner?

The commercialization path for more complex and fully autonomous driving will be very different than what we seen so far.  In the current owner/driver-centric business paradigm, new features have to be sold to customers who accept the value proposition of the technology and are willing to pay for it.  Early-stage technologies typically come with a heavy price premium and are typically introduced to “premium” brands where customers are less price sensitive.  However, barring regulatory intervention, this will likely limit adoption of technologies including electric and autonomous vehicles as there are cheaper alternatives (conventional engines and human drivers).

The game-changer for both electric and autonomous vehicles comes from the convergence of On-Demand Mobility (ODM) with electric and autonomous vehicles.  ODM players, such as Uber and Lyft are highly investing in autonomous vehicles as a means of lowering their operating costs and unlocking the potential to participate in the Digital ecosystem through offering the users of its services access to content and O2O services.  This will create a new pathway to commercializing and scaling up the autonomous driving technology in a way that has not been seen before:  as we have seen with other “smart devices”, hardware innovation is backed by the digital ecosystem and thereby eventually becomes mainstream for everyone.

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  1. Since road conditions vary globally, will perceptions of comfort and convenience vary by country? For example, will it permeate places like Amsterdam where many travel by bicycle or public transportation already?

Comfort and convenience are solutions to mobility “pain points”, and the degree to which people experience these pain points varies greatly based on where we live.

Mobility pain is much higher in densely populated urban cities like New York, London, Paris, New Delhi, Mexico City and virtually all major cities in China.  The driving experience in highly urbanized countries like China can be horrific.  Cities like Beijing experience gridlock conditions at several times during a day, and suffer from severe environmental impact from the tailpipe and other emissions.  Electric and autonomous mobility on demand would be a welcome solution to address these mobility pain points.

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  1. From a societal perspective, how will AD technology change the way individuals get to and from their various destinations?

Adoption of autonomous driving technology will improve flow of traffic, reduce accidents and improve the quality of life in an increasingly urbanized world.  Scaling up this technology through the convergence of ODM with electric and autonomous vehicles in these cities will accelerate a transition from a transportation model where we own an under-utilized asset that is used 1-2 hours per day to a model where autonomous cars, directed by a smart-city transportation grid, are deployed on demand to where they are needed.  This is a far more efficient system where we will witness a shift from ownership of hardware toward paying for the utility that is derived from the hardware.

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  1. When it comes to commuting, how will AD technology ease the problem of extensive traffic jams in cities like Beijing or Los Angeles?

Autonomous vehicles deployed by on-demand mobility services fleets will be able to communicate with each other, and will be directed to and from users and their destinations by a Smart City transportation network.  These cars will be highly utilized assets, which minimizes the amount of city space which needs to be allocated for parking lots for cars which sit idle for more than 22 hours a day.  Cars can be routed around the traffic, minimizing the traffic jams that define the life of residents of cities like Los Angeles and Shanghai.  Smart, connected, and autonomous mobility devices backed by advanced algorithms used to govern the mobility patterns will improve the livability of cities in an increasingly urbanized world.

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  1. Besides the impact AD will have on productivity, how else will it improve lives for people outside of transportation?

Autonomous driving will have a tremendous impact on our environmental footprint.  The technologies required to power and govern a network of personalized, electric and autonomous mobility on demand (A-MOD) have the potential to transform the lives of people all over the world.  For example, these increasingly electric-powered vehicles will be also be part of the energy storage grid, we could very well moderate energy consumption and potentially shrink our carbon footprint.  Transportation innovation has reshaped the history of mankind, and the transportation revolution of the next decade will set the course and has the potential to improve the lives of all generations to follow.

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Bill Russo is the Managing Director and Automotive Practice Leader at Gao Feng Advisory Company, based in Shanghai.  He has 30 years of automotive industry experience and has lives and worked in China since 2004.  He was formerly the leader of Chrysler Group’s business in North East Asia.

Bill Russo to Chair the Connected Mobility ROADSHOW Conference

Shanghai, China, December 1, 2016

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Bill Russo, the Managing Director and Automotive Practice leader at Gao Feng Advisory Company will  chair the Connected Mobility Roadshow conference in Shanghai – hosted by Messe Frankfurt.

The main players in the mobility industry are currently re-evaluating their positions, for connected mobility promises huge potential: by 2020, the market for interconnected cars is expected to have increased by 45% – ten times the growth of the general automobile market. It is estimated that in five years, three quarters of all new cars will be able to connect, and, from 2025, autonomic driving could be possible outside of protected areas.