Global Auto Forum 2010

The team at JFP Holdings had the honor of working with Wang Xia, Chairman of the Automotive Committee of the China Council for the Promotion of Trade, over the past year to organize the inaugural Global Auto Forum (“GAF”), which was held in the city of Chengdu in the People’s Republic of China last Thursday and Friday.

The GAF brought together approximately 400 participants from the media, the Chinese government and the global business community to hear the views of a wide range of industry, economic and government experts. Best known for his work organizing China’s annual auto shows which are held on alternate years in Beijing and Shanghai, Wang Xia’s aim is to make the GAF the “must attend” global automotive event of the year.

The inaugural GAF was hosted by the city of Chengdu, capital of Sichuan Province, and sponsored by Bank of America Merrill Lynch (“BAML”) and Continental AG. Dating back more than 4000 years, Chengdu is a city with a rich history that is also home to 11 million people. BAML is one of the world’s largest financial organizations, and Continental is one of the largest automotive components companies in the world with nearly $30 billion of sales.

Among the many distinguished panelists were: Edward Prescott, Nobel Prize Winner in Economic Sciences (2004), Senior Monetary Adviser to the Federal Reserve Bank of Minneapolis and professor at Arizona State University; Gao Xiqing, President and Chief Investment Officer of China Investment Corporation, China’s $300 billion plus sovereign wealth fund; Ambassador Charlene Barshefsky, Senior International Partner at the WilmerHale law firm in Washington, D.C and formerly the US Trade Representative under President Clinton who negotiated China’s entrance into the World Trade Organization (“WTO”); Paul Ingrassia, Pulitzer Prize-winning author and journalist; Clyde Prestowitz, Founder and President of the Economic Strategy Institute, a Washington think tank and formerly a trade negotiator under President Reagan; and Rufus Yerxa, Deputy Director General of the WTO based in Geneva, Switzerland.

I moderated two panels at the GAF. My panel entitled “The Road to Further Consolidation: M&As and Alliances” included John Casesa, founder of Casesa & Co., a New York based automotive advisory firm, and former Institutional Investor All American Auto Analyst at Merrill Lynch; Robert Arrieta, Managing Director at Jefferies & Company, Inc.; and Andy Wilson, Partner and M&A Leader of the automotive practice at Deloitte & Touche. My panel on “Auto makers and Suppliers: Rethinking the Relationship” featured Jay Kunkel, head of Continental’s $4 billion Asia business; John Weber, CEO and President of US parts maker Remy International; and Stefan Schumaker, Automotive Business Development Manager for IBM. Two old friends, Wang Dazong, General Manager of Beijing Automotive Group, and Tim Manganello, CEO of Borg Warner, were active participants at my sessions and served on other panels.

The GAF was a first-class, international conference. Claude Smadja, the former head of the World Economic Forum and organizer of the annual forum in Davos, Switzerland, and his firm, Smadja and Associates, co-organized the event. For more information on the GAF, please refer to the GAF website.

Many important, sometimes startling, observations were made and discussed at the GAF. These included:

• China’s vehicle production will reach 17 million units in 2010 and climb to 25 million units by 2015.

• In 2020, China’s vehicle production will be a minimum of 30 million units and may range as high as 40 million units.

• According to Professor Prescott, China’s vehicle production may be an astonishing 75 million units in 2030 before leveling off to 60 million units annually. By way of reference, total global vehicle production is approximately 70 million units today.

• China will have substantial excess capacity in autos by 2015. The resulting pressure to export vehicles may lead to significant trade tensions with countries that have substantial automotive industries (read the United States).

• Despite the media hype, hybrid electric and electric vehicles will account for only 5 to 10 percent of total vehicle production in 2020. Cost and the shortcomings of the lithium ion battery were given as the two main reasons.

• The internal combustion engine will be with us for some time to come. Significant improvements that improve fuel efficiency and reduce emissions can still be made in gasoline and diesel engine technology.

Stay tuned. In a subsequent post, I will highlight Ambassador Barshefsky’s advice to the China automotive industry regarding exports.

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