``Wanted: Quality Tier 2 automotive parts molders with strong design capabilities. Must be willing to relocate. Terrific earning potential for right candidates.''
Such a sign currently does not hang outside the modest Shanghai headquarters of Yanfeng Visteon Automotive Trim Systems Co. Ltd., China's largest automotive interiors supplier and a significant producer of bumpers, body panels and more. But one could forgive General Manager Steve Meszaros for considering such an ad.
``There's a great opportunity for Tier 2 suppliers in plastics to come to China,'' Meszaros said in a July 7 interview at his office. He's especially looking for suppliers that also can localize design. ``Right now, we have to design a lot of products we don't make - and ultimately it would be preferable if we sourced suppliers that could design the product as well as manufacture it.''
Similar opportunities await Western suppliers of quality tooling and engineering thermoplastic resins.
``Here the technical capabilities of the industry, especially the supply base, lag elsewhere in the world,'' he said. Chinese suppliers are good at build-to-print, but generally lack the innovation skills to adapt product designs to the local market.
Meszaros said his firm already is served by perhaps dozens of plastics suppliers in China, including some very capable Western plastic parts suppliers. But it simply has proved tough to keep up with the meteoric growth of China's auto industry.
``We planned for growth, but we did not expect two years in a row of, first, 55 percent and then 85 percent,'' said the Canadian-born, longtime veteran of both Ford Motor Co. and Visteon Corp., who has been in China for 31/2 years.
Yanfeng Visteon - known as Shanghai Yanfeng until the end of 2001 - is a 10-year-old, 50-50 joint venture between Visteon in Dearborn, Mich., and Shanghai Automotive Industry Corp. that began by focusing on interior trim before expanding about seven years ago into exterior trim. Its biggest customers in China are the nation's two biggest automakers, General Motors Corp. and Volkswagen AG, though it serves most major automakers in the country.
``We expected some cooling off, and now we're actually seeing it,'' he said, referring to the recent, government-orchestrated slowdown meant to prevent China's economy from overheating. The government has not targeted the auto industry directly, but it has tightened consumer lending, including the financing of auto purchases by local banks, a service that really began in earnest in China only last year. The result has been a rapid falloff in the growth rate of vehicle sales since midyear.
The executive noted that China really is two countries. There is quite a developed nation of 150 million people on China's eastern seaboard, with rising per capita incomes and quite low basic living costs. That increasingly prosperous region essentially represents a market roughly the size of the United Kingdom and Germany, combined. The rest of the country's 1.2 billion-plus people, meanwhile, are very poor.
But the Chinese are tremendous savers, Meszaros said, and most are making their first car purchase ever. They tend to invest a much bigger share of their annual income than their North American counterparts in such a purchase. They are also demanding consumers who are interested in having the latest technologies in their vehicles, such as heads-up displays, rear-seat DVD players and other high-end electronics.
Luxury brands are big sellers with the wealthy elite in China, with high-end BMWs, Mercedes and even Rolls-Royces often fetching higher prices than they do in the West. The Buick Regal built by Shanghai General Motors Corp. Ltd. also is considered a luxury brand there. There are few better examples than the Regal to demonstrate the value of localizing design.
``I give GM a lot of credit,'' said Meszaros. ``They recognized that they needed to tailor their vehicles specifically to the China market.'' Visteon executed that effort, researching luxury car buyers in China by holding nine focus groups to get a sense of what craftsmanship means to the Chinese. They also studied which color schemes Chinese consumers favored. For example, harmonious two-tone interiors such as beige and brown are very popular with the Chinese, while gray and black score poorly.
``Fit and finish and craftsmanship are important,'' said Meszaros. Chinese consumers tend to like technology, wood grain and chrome. ``They value something if it looks like it was difficult to manufacture.'' A perfect example is the gear-shift knob on the new Buick Regal - it's got a chrome button, wood grain, a little chrome ring and an inside leather insert. ``It looks very complex. ... It's become sort of our symbol of Chinese craftsmanship.'' It earned the ultimate compliment recently when a local competitor ripped off the design, he said.
Visteon - mostly via its U.S. design studios at the time - helped customize the sedan's interior, and began supplying instrument panels for the Regal in early 2003. The vehicle's sales in China more than doubled last year, to 89,988 cars, from 37,325 in 2002. Yanfeng Visteon now has its own styling studios in China, which is unusual among suppliers.
Yanfeng Visteon operates seven plants in the eastern half of China that do plastics molding, and runs about 30 injection molding machines, all with clamping forces of 1,300 tons or more. Meszaros estimates that his firm made the instrument panels for more than a third of all the passenger cars sold in China last year, equaling about 700,000 instrument panels. In 2003 it also produced roughly 700,000 door panels and 380,000 bumper sets.
The company does its own slush skin molding in China, but Meszaros pointed out how materials are a much bigger deal there than labor. To minimize any material waste in the foaming process, the company has two employees manually check to make sure the skin is in the mold correctly before every shot.
He noted that Visteon's geographic expansion within China has changed the nature of the company. Three years ago, ``we were a Shanghai manufacturer. Now we're very much a national, full-service Tier 1 or even Tier 0.5 supplier. We ship big cockpit modules in sequence, and we design complete interiors.''
Shipping within China is very expensive, he said, and development of the infrastructure is badly lagging the economy's phenomenal growth rate. That made it imperative for Visteon to expand its manufacturing operations into other parts of the country to locate near customers.
``Fortunately, we anticipated and put the capability in place in some of these other key cities [outside Shanghai] in order to catch the wave, so to speak.''
The domestic market is the company's focus, since its parts - with the exception of sun visors - are too big to export cost-effectively anyway.
China's rapid growth has created other challenges, especially when it comes to finding experienced managers to fill senior engineering and project manager-type posts. There certainly is no shortage when it comes to recruiting hourly factory workers, and the population's level of literacy and education is exceedingly high. But this business boom is so new, there is a real shortage of employees with long work histories and practical experience.
``Our people, in general, are very young. We have people in positions of responsibility at an age that would be unheard of elsewhere in the world,'' Meszaros said. For example, the person who runs all of Visteon's Shanghai plants is 34 years old, and he assumed that post three or four years ago.
On the other hand, he said, one of the biggest advantages, is the stability of the workforce. In the hourly ranks, the majority of the turnover that Visteon experiences is through retirement.
Meanwhile, he said, ``Our success in establishing product development capability here has outstripped our expectations.'' Again, designers and design engineers tend to be very young, but also very talented. ``
Getting affordable engineering thermoplastic resins also can be a challenge. Meszaros said that while one obviously can buy cheap plastic materials to make such products as toys in China, companies such as Visteon still need to import most of the ETP grades they need.
``In general, our material costs are higher [in China than for the exact same material in the West]. At bare minimum, you're paying the duty and freight to import it. In other cases, you're also paying a premium beyond that.'' He said cheaper materials are available, but most will never meet the automakers' specifications.
With major Western materials suppliers hurriedly setting up and expanding operations in China, a lot of the material localization issues should be resolved in the coming years.
Tooling provides yet another challenge. Visteon's Chinese partner, Yanfeng, began in the 1930s as a stamping and die shop. It got into injection molding in 1978. And, while it always had its own tooling shop, Meszaros admits that Visteon did not pay that much attention to it during the first eight years of joint venture. But about two years ago, as business grew rapidly and tooling became a bottleneck, Yanfeng Visteon made a big investment in that area.
``We make big bumper tools and instrument-panel tools here,'' he said, and also use a good network of local tool shops on the mainland, and also sources from automakers' preferred vendors abroad, when necessary. Yanfeng Visteon currently makes the majority of its own tooling in China, and Meszaros expects the percentage of molds that it either makes or sources locally only to increase.
The company has the capacity to make up to 100 medium to large tools a year, and within 18 months it should reach that production level. But, he said, ``We need over 200 tools a year,'' so a lot of tooling still will continue to be made outside.
``There's definitely an opportunity,'' he said, for Western toolmakers that wish to set up in China.