Foreigners Engaged in Car Dealings in China

The Chinese auto market, in which 1.4 million cars were sold in 2009, attracts not only the foreign auto makers but also the auto dealers.

According to the foreign report, the US businessman Mark McLarty acquired the shareholding of the Beijing-headquartered Northern China German Automotive. This company is mainly engaged in the sale of BMW, Mini Cooper and Volvo and owns a dozen of stores in Northeast China. The paper income of this company in 2009 reached 1 billion US dollars and the income is expected to reach 2 billion US dollars in 2011.

Mark McLarty is the son of famous American businessman and politician Thomas McLarty. Mark McLarty hopes that 3,500 BMW autos can be sold in one of his flagship stores located near the Capital International Airport in 2010. This equals the total number of BMW cars sold in Oregon and Colorado, the USA in 2009.

As one of the auto dealers who witnessed the dynamic and prosperous Chinese auto market, Mark McLarty said: “I don’t understand why the other foreign auto dealers have not got into the Chinese market.” He also plans to open another 25 stores in China in the next 12 months and to sell Jaguar, Land Rover and even the Porsche vehicles.

Mark McLarty, 38, previously served in Texas Pacific Group (TPG), one of the few big investors having invested in Chinese auto retailing industry. This Texas-headquartered investment company owns 40% of the shares of China Grand Automotive Service Corp. (Grand Auto), which is a large chain of auto dealers. The company sells Buick, Volkswagen and Toyota cars and it hopes to double its 230 stores in China in the next few years.

According to a source, Grand Auto held by TPG saw the sales amount of 5 billion US dollars last year and the profits exceeded 130 million US dollars. TPG hopes that it can make Grand Auto go public in the next few years.

In the past ten years, the foreign auto makers strived to get into the Chinese market. They invested billions of US dollars in building plants in China and developing new models to meet the demand of the Chinese consumers. Meanwhile, these manufacturers got enough returns on their investments. Last year, China saw a 50% increase in the sales of passenger cars and light trucks, making China the biggest auto market in the world.

The BMW executives forecast that more BMW vehicles will be sold in China than in Great Britain. Therefore, China is expected to take the place of Great Britain to become the third largest market for BMW. In addition, 100,000 BMW cars will be sold in China this year.

The global auto industry focuses on China. The Beijing International Automotive Exhibition held from April 23 to May 2 proved this point. Many top corporations’ executives, including Dieter Zetsche, board chairman of Daimler AG, and Carlos Ghosn, CEO of Nissan Motor Company, were present in the Exhibition in person to launch the company’s new products.

However, the foreign auto dealers have not been actively engaged in the Chinese market. In fact, the foreign investors were only allowed to have a small amount of shares of the Chinese domestic auto dealers before 2005.

In the past ten years, only a few Asian investors achieved certain progress in selling cars in China, including Hong Kong-headquartered Lei Shing Hong Ltd. Meanwhile, large European and American auto dealers could barely get into China. For example, the US largest auto dealer Penske Automotive Group Inc, said a source, had studied the feasibility of entering into China for several years but finally gave up.

Now, China’s auto market has been more mature than ever before. The drastic growth has attracted a group of front-running investors, like Mark McLarty who bets his future on the Chinese market.

According to the data from the US consultancy company Alix Partners, though China’s auto market is hot, its 1.3-billion population base keeps the number of retained automobiles in China at an extremely low level. In China, every 1,000 people own 35 automobiles. In comparison, every 1,000 people own 100 autos in Brazil and 439 autos in the USA. Therefore, most of the experts believe that the auto sales in China will double in the next five years.

Jin-Goon Kim, a former executive of Dell Inc., received the invitation from TPG to take charge of Grand Auto. He said: “If you know what you are doing, China is possibly a good market. The domestic car dealers in this country have not enough competitive power and many of them don’t even know how to operate their businesses.”

In 2007, TPG began to invest in Grand Auto, which was founded by a group of retired officers of the PLA. The company is headquartered in Xinjiang. Jin-Goon Kim refused to tell the detailed amount of TPG’s investments. This American Korean executive said that he plans to expand the number of Grand Auto’s affiliate institutions to 500-600 in the next few years through acquisitions. The company’s profile showed that the number of affiliate organizations in last December was only 230.

The Chinese domestic auto dealers have their own special features. The purchasers of the luxury cars are usually the start-up entrepreneurs, speculators in China’s property market, high-level government officials and their children. They have high requirements but have limited or no experience at all in choosing cars. 80% of the cars sold in China are bought by the consumers who buy their first cars.

At the beginning of May, a group of women sellers wearing stylish black suits and blue cravats in a McLarty’s BMW store in Beijing led their customers to a bright and wide exhibition hall and arranged special sales representatives to inform them of the products’ information. In addition, these customers were served with Cappuccino and Chinese tea. In a small room behind the exhibition hall, two VIP customers lied on the couch and enjoyed the massage that the distributors especially provided for them.

It is said that some customers prefer to pay in cash. Some customers even bring a luggage box filled with money to buy their cars. The distributors, as reported, don’t advocate this way partially for the prevention of the embezzlement accompanied by the deal of a large amount of cashes. If the customers insist on paying by cash, the sellers of McLarty’s shops usually suggests a meeting with the customers in the bank where they open their accounts and help them finish the transfer.

Another appeal for the foreign auto dealers is that there are many new green-hand drivers in China, resulting in many car accidents as well as the huge demand for repairing cars. Therefore, McLarty’s stores in China also provide repair services for their customers. McLarty plans to open a big garage in Beijing that can accommodate the repair of 1,200 cars at the same time.

McLarty has already collected a large number of experienced and high-quality executives to help him develop the Chinese market. These executives include the senior financial director Brett Hutchinson, who previously worked in the US auto dealer Asbury Automotive Group. In order to prevent the stealth and embezzlement from his employees, McLarty engaged Yena Huang, who accumulated her human resource experience in Procter & Gamble Co. and Whirlpool Corporation.

According to the forecasts of these experts, the growth of auto sales in China will be eased in this year. McLarty and Kim believe that this is good for their businesses and the market will favor the distributors with great efficiency, credit and high-quality products.

Meanwhile, they said that TPG can effectively deal with the eased growth in auto sales, because they are good at selling some periphery products like credit loans and insurance for cars.