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China's car makers urged to learn from U.S. crisis by "thinking small"

2009-01-03 14:14:23 GMT2009-01-03 22:14:23 (Beijing Time)  Xinhua English

A woman walks past rows of new Mazdas outside a factory in Haikou, in south China's Hainan Province. (Xinhua/Reuters)

BEIJING, Jan. 3 (Xinhua) -- There's a lesson for China's car makers in the fate of the ailing U.S. auto industry: develop smaller, fuel-efficient models instead of betting on gas-guzzlers, industry analysts have warned.

"We used to believe medium-sized cars would have the biggest market in China, but actually small cars have the greatest potential in terms of energy efficiency and price," senior engineer Chen Yilong of the Society of Automotive Engineers of China told Xinhua in December.

The U.S. auto makers' plight stemmed from their decades-old love affair with big cars while Japanese carmakers gained a stronghold by appealing to America's fuel-conscious consumers, said independent auto analyst Jia Xinguang.

"U.S. car makers should not have given up the market for small vehicles," said Jia, who urged Chinese auto makers to follow the path of Japan in terms of safe, fuel-saving technologies.

"The fall of the U.S. car industry is not a recent thing; it has been going on since the 1970s, when crude oil prices almost tripled because of output cuts by major oil producers," said Jia.

During that crisis, Japan-based Toyota expanded its presence in the United States with cheap, fuel-efficient cars. It now has surpassed most rivals with sales only second to General Motors on the U.S. market.

The most fuel-efficient U.S.-made vehicles had a combined fuel economy of 28 miles per gallon but still lagged Asian models such as the Toyota Yaris (31 mpg) and the Honda Fit (30 mpg), Forbes magazine reported in August, citing estimates of the U.S. Environmental Protection Agency.

Such seemingly small differences might be neglected in good times but became important to consumers hit by the financial crisis, said Chen.

Detroit's "Big Three" car makers -- GM, Ford and Chrysler -- saw their sales ebb in North America in recent years. Two, GM and Chrysler, warned of collapses amid the financial crisis and got 13.4 billion U.S. dollars in government loan aid in December.

It would be an unsustainable pattern of growth for Chinese car makers to merely rely on cheap labor and low auto parts prices, Jia added.

Official data show sales of compact cars dipped in China in 2006 and 2007, when sedan sales rocketed more than 20 percent annually.

Chen attributed the decline to producers' sluggish efforts to improve vehicle performance and quality, combined with inadequate support from the government.

The best result Chinese compact cars earned in car crash tests last year was three stars out of a five-star rating system.

Better technologies are needed and the government should give policy support to hybrid vehicles using new energy sources, said Chen.

He warned that domestic brands could be disadvantaged if the technology used in compact cars didn't catch up with global rivals.

China's vehicles sales fell 14.6 percent year-on-year in November under the influence of the financial crisis. Growth in the first 11 months stood at 8.5 percent.

The National Development and Reform Commission has mapped out a plan to boost vehicle consumption, targeting an annual rise of car sales higher than the country's gross domestic product in the next three years.

The plan included cutting consumption taxes on low-emission and economical cars and supporting hybrid vehicles.

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