Taipei Times: After Taiwan joins the WTO, local consumers are expecting prices of foreign cars to gradually drop to affordable levels. What do you think the impact will be on local auto market?
Jeffrey Shen (
PHOTO COURTESY OF FORD LIO HO MOTOR CO
That is, on average, only a 1 percent to 1.5 percent reduction per year to push dealers to lower prices by a few thousand NT dollars. Consumers will hardly notice a difference of a few thousand dollars since this is a highly competitive market.
While local dealers tend to offer premiums of more than NT$10,000, consumers are unlikely to rush to buy a foreign car simply because of a difference of a few thousand NT dollars.
Therefore, I don't think the market share of imported cars, which is 18 percent now, will climb to above 25 percent within the next five years. However, a commodity tax cut from 60 percent to 35 percent [in five years] is likely to greatly slash prices of imported luxury cars with engines over 3,600cc and priced above NT$2 million.
A 25 percent tax reduction means a price cut of at least NT$500,000, which will spur customers at the top of the pyramid to buy. But that is going to be only a small proportion of consumers.
TT: Then do you expect sluggish auto sales to go up this year and how will the local auto industry compete with foreign firms to grab market share?
Shen: Many have anticipated a mild recovery, but we haven't seen any signs of recovery yet. Therefore, auto sales this year are likely to maintain last year's roughly 350,000 units.
However, we've seen competitiveness and growth building up on some sub-segments within the same market. We found that demand for cars with engines over 2,000cc has declined to a 20 percent share of the market in January from over 35 percent in the past. Demand for recreation vehicles (RV), such as sport-utility vehicles (SUV) and multi-purpose vehicles (MPV), is expanding, taking a 25 percent market share in January while it could only grab 10 percent in the past.
Therefore, targeting growing RV sales as our strategy, Ford has developed six different models including Escape and Mazda's Tribute to compete for market share.
TT: Are local consumer preferences helpful in predicting purchasing patterns?
Shen: I think Taiwanese consumers are unpredictably fascinating. They have absolutely no loyalty to brand names.
For the past 10 years, whatever company launches a car that satisfied their needs, crowds rush in to buy. In general, they are fickle in affection and always looking for something new in the market place, new in style, new in technology and new in interior.
Therefore, it has become very important for car dealers to be capable of predicting what consumer needs are ahead of time.
TT: Ford has decided to invest NT$10 billion in researching and designing new models. What are your strategies?
Shen: We'll put over half of our energy in developing new RV models because RV has become a global trend.
Besides, Taiwan is ready to embrace the upcoming long-weekend off schedule [to have more time for recreation]. Actually, back in January, a car exhibition in Detroit mostly displayed various RV models, which is a trend that I think Taiwan should be quick in picking up. In addition, January's auto sales showed that more people are shopping for RV models. It's not difficult to understand why since traditional cars just don't have the same capacities as RVs. My experience tells me that I can't fit my two kids and their bicycles in my old car regardless of how big it is. More and more parents are spending quality time with their children during weekends and I think they will eventually need an RV to facilitate their recreational needs.
TT: The auto product cycle tends be short. How will you diversify RV models to boost competitiveness?
Shen: I look at the term RV as a broader term, which includes large and small-sized RVs, SUVs and [Ford's] MPV.
In the US, sales of MPVs are going down while sales of SUVs are on the rise because MPVs have been dubbed as mom's car and seem to be short on personality. SUVs suit all ages and walks of life, and represent vigor and speed. It's also appropriate for the work place.
I think sales of SUVs will grow rapidly to hit over 15 percent share of the market within the next three to five years.
TT: Many local consumers long to purchase foreign cars -- a symbol of luxury -- but have been unable to foot the hefty pricetags. Given the fact that consumers are expecting prices of foreign luxury cars to decline, how will the local auto industry compete with foreign firms?
Shen: Within the next five years, I don't think foreign cars will be able to expand their share in Taiwan's car market in the 2,000cc-and-under class. Currently, 95 percent of cars sold with engines under 2,000cc are locally made. Why do consumers go for locally made cars with 2,000cc engines, instead of foreign ones? Prices. Differences of NT$100,000 to NT$200,000 do matter and so does extra equipment.
Local dealers usually offer buyers premiums worth more than NT$200,000 including VCD players and automatic windows. Moreover, four major local auto firms are endowed with design and research capabilities, which allow them to be customer-oriented in Taiwan.
Foreign firms will only design cars for their largest target groups such as the US and Japan. Compared to Taiwan's 350,000 units, 1.6 million units are sold [per year] in the US and seven million in Japan. Therefore, no foreign firms will design cars especially for Taiwanese consumers. In this regard, local firms have the advantage.
TT: Does Ford have plans to invest in auto plants in China and what is your so-called strategy of producing complementary models (
Shen: We'll standardize one single car mold and allow both sides to develop components that complement one another in order to expand our economic output. If China's markets can be included, costs of designing a new car will be greatly lowered.
Currently, Ford has one factory in China's Jiangxi (
Until the "three links" are put into practice or a free-trade zone is completed across the Strait, Ford's Chungli-based and Chongqing-based factories will become the firm's major suppliers to Greater China's auto markets. My estimate is that China's auto market will grow to at least 7 million or 8 million units [per year] within the next 10 years. If Ford can seize a 10 percent share, it will need more factories in China. Therefore, Ford plans to invest another NT$30 billion to NT$40 billion there.
TT: Will you then move your operations to China?
Shen: No. Ford looks at its base [in Taiwan] as the design and research center for the Asia-Pacific region. Even if Ford enters the greater China market, our marketing experience tells us that any cars that sell in Taiwan will later sell in China.
Therefore, Taiwan-trained salesmen will play a very important role in China in the future. Thus, we can't possibly withdraw our Taiwan base and move to China.
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