Magneti Marelli: Opportunity brought by 100 Million Driving licenses

Luca Biagini:  CEO of Magneti Marelli China

Holder of Professional Master (Dirigente Senior),  2005 Middle East Asia Pacific Director – MMGZ – China,2004 Direttore Commerciale – Marketing

 

The Fifth Edition of Series of Interview with MNC Auto Parts Suppliers

Rapid growth in China

Gasgoo: Firstly, thank you very much for you to accept our interview from Gasgoo.com. Now can you briefly introduce the MM Company to the Chinese?   What’s the automotive supply?

Luca: Yes, Marelli is a world wide company. We’re located in Milan that is our headquarters in Italy, and Marelli has six divisions. Our last revenue, in last year was 4.4 billion euro, 10% more than the previous year. And, we have really good results. We have a total of 53 plants all over the world, and we are around 25000 people.

Gasgoo: 25000 people?

Luca: Yes. We are, generally speaking, we are a high-tech company. And we invest on average more than 5% in research development; even if some of our business lines invested more. And we also invested around 5.5% in new plants. We have a world wide presence with six business lines; one is automotive lighting, the most important, 1.4 billion euro revenue last year. The 2nd one is suspension systems, more than 1.1 billion. Then we have a power train, more than 800 million Euros. And we have electronics, around 550 million euro. Then, we have an exhaust line, it’s around 440 million Euros, and last but not least, motor sport, we don’t have big revenues but have a big impact in terms of technology, research and also image research. As you know Magneti Marelli supplies to the most important Formula 1 racing team, our systems and technology are in the last 5, 6 years, all winning cars, Ferrari and Renault are equipped with our systems and our components. Also win the World wide championships. We won the GPA system and also the Motor GP. So you can say that where in racing, the technology’s at the top, especially in the automotive sector. Magneti Marelli is best.

Gasgoo: Ok, so, in the year of 2005, the revenue of Ama Group has increased 2% globally?

Luca: Global increase 10%, as said before from 4 to 4.5 billion Euros. Yes.

Gasgoo:  And with the incorporate strong performance from Poland and Brazil and the important trend in electronics system business, that’s in the year of 2005. Why in 2006, you achieved even more significant growth.

Luca: Let me say, all the divisions grow according to the growth of the general company. As I said, a general company with 10% in all the divisions grows in this way. That means that we are focalizing with the same growth all over the world. You say mainly Poland and Brazil, but also I can tell you that China, even of course we are at the beginning and small, but we contribute in an important way, just to give you more information, in the year 2005 we sold a total of 44 million Euro, so that’s is about 440 million RMB. This was in 2005. In 2006, we sold a total of 63 million Euros, 660 million RMB. It means we grew almost 40%. So that means also in China if the number, of course, lower than the rest of the world, but in percentage is that we make the biggest growth in China. Of course we are spending in North America, of course Brazil is important for us, in Europe we are growing a lot, in Russia, in Malaysia, in Japan, so all over the world Magneti Marelli is growing. 

Gasgoo: So the global market is increasing?

Luca: Global Marketing is increasing, but also we are increasing where the market is growing, but often increasing where the market is not growing. For example in Europe, Marelli increased, I have told you, 10% generally, but some markets didn’t increase 10%.

Gasgoo: Can you explain why you grew so fast?

Luca: Probably for two main reasons. One main reason to defect is our mother company Fiat Group is going well and of course we are not captive as for example, our competitors, for example, Fujian, GM and Ford. We have other important customers, any way, of course, if one customer grows, and the others grow a little, the general growth is assuring. The 2nd one is because since the technology developed, Magneti Marelli for example for racing, every level is advanced and also develop important new technologies like the MT4 power train, emission regulation for GASoline and diesel. We talk about new technology for lighting LED or AHF that is the system that turn well.

Gasgoo: Yes.

Luca: Our new system for exhausts in order to fulfill new regulations, suspensions is high-tech in order to have better comfort and better stability car. So, due to these new technologies, we are increasing towards our customers and last but not at least, it’s a Magneti Marelli approach. We are normally considered as a partner. So we are not simple suppliers, you buy components from me, I give you partnerships, I grow with you, support you in technology issues and so on and I give you as the customers a customized solutions in order to grow together. And normally we are very flexible; this is what our older customer recognized in Magneti Marelli. Maybe we are not strong as our competitor, but we are really flexible, we are very friendly and supportive.

Gasgoo:  And thinking from the point from the customers.

Luca: Yes.

Following Chinese Brands closely

Gasgoo: Ok, so you’ve mentioned the Fiat, Fiat is your mother company? And also the main customer, the biggest one?

Luca: In some areas, and globally speaking, yes, is our biggest, around 40%. And in some area, some business lines, of course its number one, but in some business not, for example, world wide for electronics business lines, it is the 2nd one.
Tina: 2nd one?

Luca: Yes.

Gasgoo:  In China?

Luca: It is the 4th one. So I can not say that, all of it. Of course, it is the mother company, so it is our Mother, we have to respect and care of them of course. But I’m very happy that they are growing up.

Gasgoo:  Frankly speaking, you know, China’s market is booming. So lots of global brands, like GM, like Fiat, like PSA entered China for a long time. While comparatively speaking, Fiat actually doesn’t meet the expectation. Not only from his side, but from China’s side as well.

Luca: I can say that Fiat, of course Nanjing Fiat is now developing a new strategy in order to enter in the market in an important way, within the next few years. So, I think it’s very conscious and confident, in the next year; we will talk more about Fiat.

Gasgoo: Ok. While you know Fiat doesn’t work so well in China’s market. MM Group works very impressive, and GASined achievements, what’s the main reason for china’s market for success?.

Luca: We, first of all, we arrived in China before,

Gasgoo: in 1996?

Luca: in 1996, a little bit earlier than Fiat Corporations.

Gasgoo:  That’s right.

Luca: And in 1996, they beGASn the first establishment in Guangzhou, and was an electronics business, and in order to fulfill and follow the operation of PSA in Guangzhou

Gasgoo:  Yes.

Luca: Then after that unfortunate for Peugeot, That operations didn’t work well, but Magneti Marelli decided to stay. And even if we lost the most important customers, we stayed in China and we continue to get new business and new customers. So we stayed there. That was the first operation. Then of course continuously, we started to think about other business lines. So we started to enlarge other business lines. The 2nd business line was powertrains.And we got to first business, I can say I got, because at that time I was around here, and in 1998 I signed my first contract with Chery and Jinbei and others. And so in the year 2000, we opened this plant in Shanghai for powertrains, and in the year after 2001, we opened the exhaust plant. And in 2003 we opened another plant in Wuhu for powertrains to follow mainly Chery activities. And in 2004, we started the operation for automotive lighting in Wuhu, partly in Wuhu, partly in Shanghai. So I can say in this year, we started to get the more business for Chinese especially the powertrains are very important, because at that time, even Fiat was not here, but we’re happy in some way that as you know in 1999, China decided to introduce new regulations starting from January 1st to 12th, L 1,the new emission regulation. And it was quite late this decision, so all our competitors were very busy in fulfilling the quests from their normal customers. So all the Chinese have no possibility, so we arrived and that’s why we started following Chery in JingBei, brilliance and others.

Gasgoo:  JingBei?

Luca: Yes, that is always arrived at the right time. We started a lot of business then. So that’s why we start working first with Chinese. So that’s why we have a long tradition with Chinese car makers, more than JVs, we are now also working with JVs.

Opportunity brought by 100 Million Driving licenses

Gasgoo:  Ok, so according to what you have just said, China became a more and more important market for your group.

Luca: Yes, China is going to become one, I don’t say the most important, one of most important markets for my group, because you know you can see the market here is booming, really booming. Now already we are the 2nd market in the world, so sooner or later, in one or two years, maybe 3 years we maybe become number one, why not to be here, the number one market in the world?

Gasgoo:  We also interviewed the Asia Pacific marketing director; Mr. Yang from Visteon. He told us that, in the future 3 years, Visteon would focus more on the Asia Pacific area, especially on China market.

Luca: What Mr. Yang said is true and of course, is obvious, because the European market is stable.

Gasgoo: Yes, that’s right.

Luca: US market is stable, it’s an important number but its stable, it is, there is one car, I throw out the old car and buy a new one. It’s a replacement market.

Gasgoo:  Yes.

Luca: But the markets like Brazil and especially in China. Yes there are a lot of new people that need cars. Last year I got my driving license.

Gasgoo: In China?

Luca: In China yes. He told me you are one of the last of the first 100 million driving licenses, after I made a small calculation I said there are not so many people who are driving in China. In fact, they told me that, only 30% of people are driving, and the majority of them are taxi drivers. But you know how much it cost for a driving license in China.

Gasgoo: Yes.

Luca: So if people can afford this cost, the problem is, they want to drive a car.Then another friend of mine, one person working in bank, told me that in China there are 18 million people, that tomorrow morning, they can go and buy cars.

Gasgoo: That’s right. That’s the truth.

Luca: So if you combine 100 million driving licenses with the 18 million people who can buy car tomorrow? First of all, there is not enough capacity in the world. This market is booming aGASin and aGASin, so I’m sure that we go up  and up, and even if the government tried to slow down, and the government do something good, just to slow down, because you can see it is difficult to drive in the cities nowdays.

Gasgoo: The motor industry will always be the most important industry for national economy?

Luca: Yes, any way you can not stop. You can not stop the fact that people all want to have cars, maybe a small car.  Just to go around. They want to go around the city or just visit the family, that’s good. So its one of the needs people have.

 Equal importance on R&D and Production

Gasgoo:  So China is very attractive, potentially. Can you give us some specific plans in your China strategy?

Luca: I can tell you one thing. We are, in recent days, we are defining our new 5-year-plan so we are quite fresh about our new strategies.  About that one, Marelli is going to invest a lot in China. We are going to open 3 or 4 plants in the next 2-3years.

Gasgoo:  3 or 4 plants?

Luca: Yes, according to the business we got the last year, so I think that growth of Marelli in China is important. And we are growing up a lot. I just tell you that last year this time we were all over china around China a lot of people. We need to support of local business. Last year we got 10 new businesses in electronics, 24 new businesses for powetrains, 5 new businesses for exhausts and 13 new businesses for lighting.

Gasgoo:  In OE market or aftermarket?

Luca: OE market Mainly we are focusing on OE markets, and mainly we are focusing on Chinese markets. So all the business lines, except electronics, at present, are working for China. Electronics are exported around 30% of production outside China. And of course we will grow in the next year.

Gasgoo: You mention 3 or 4 plants you are going to build, is it to be for private or the joint venture?

Luca: We are thinking about both.

Gasgoo: Both?

Luca: Up to now, we have only WOFE.

Gasgoo:  Like Shanghai this one?

Luca: Like Shanghai, like Guangzhou, so all of them are WOFE. But of course in these growing markets, we are also considering the possibility to manage the position of all joint ventures.

Gasgoo:  So in this plant, how much percent towards the R&D funding? Or just take the major technology in China?. 

Luca: No, we have a high-tech department, we are searching for we have around 40 people for powertrains, 30 people for lighting, 6 people for exhausts, in this area for example. In Guangzhou we have 36 people for electronics, so that’s mainly the activity of research and development in China is divided to parts. The first part is to get the car confidence that’s normally developed at the headquarters in Italy. And we transfer to here, and adjust in order to satisfy the local maker’s specifications, and after that we will make the so called application job for the market. By the way, especially electronics, for example is able to develop complete products by themselves. They already did last year, one cluster for the Ford Fiesta, completely made by themself. 

Chinese Brands eagerness to learn

Gasgoo:  Another thing is how do you think of the China national brand?

Luca: I think that’s a very interesting activity, definitely, China market is, probably the only one in the world with strong JV as well as strong local market present, but up to now, the local Chinese, even if they are good, I can tell you, some of them are good, probably they are not convinced to be good. They instinctively come to the government to help them , these strategies of the Chinese brand, I think should give to the Chinese car maker the right of willing , the right to, I can say, the right conscious, they can do very well, for example, we can say, the cases say of Chery, the cases of Geely, Greatwall, SAIC and NAC, they are doing a quite good job, and I think that in the near future, markets like Europe, U.S. must be very careful about these brands.

Gasgoo: Ok, another question is about the main business of MM group. Why the suspension did not come to this market since it’s so attractive?

Luca: Yes, you’re right In fact, we are thinking about that. The only fact that we have not arrived yet is just to the identify right to find the right moment, and also the right amount of volume, because to settle a suspension system production here, also requests a set amount to build it. So our suspension system is divided in to main lines, the first one is shock absorbers, it’s exactly what the Chinese market is ready to accept. And the other one is the quad suspension systems, suspension system like that is something maybe a bit early for the Chinese market, because normally for suspensions system, The Chinese carmaker is vertical like, so normally they buy pieces and assemble them, they have the advantage to have a suspension system activity, the fact that they buy everything and assembly everything then give to you, and you put them all in the car. So this is for car makers very useful, present Chinese carmakers do not understand this issue, for shock absorbers ,we are thinking about that, probably to come soon.

Gasgoo: There are national Chinese brands, so what’s the difference between them demands?

Luca: That’s an interesting question. Working with the JV’s in some way could be easier. In the sense that the JV’s normally, they work in the same way that we are used to work on the other side of China. So normally to make the specification, normally in the JV, the language is quite easy, to all the JV, You can find people speaking French or German or English, not only at the top level but also the medium , so the relationship is easy. The only difficulty is normally when you have joint ventures, you have to deal with the western party and then with the local party. We look to be careful to negotiate with these issues for new business also. If something is not well-understood by the local part, we can always ask the help from an interpreter and we can understand. Considering the Chinese, the Chinese have less experience, and so they need to be helped a bit more, that in some way is good for us, because we try to have good relationship with partner and customer, I told you at the beginning. So we like to grow up with customer, since the beginning, Marelli arrived in China, bringing the current technology you use world wide. So if you look at our products, are the same the technology level, that we were producing in Europe or Brazil, they are not the same components but the same technology, we are bring to China the technology that used outside China that is higher than what this market request. While our competitors normally brought old technology, because the old technology only are easier to explain, one example, a lot of our competitors are selling 8 bits ICU’s, we sell 32 Bit, the same we use in US and Europe. But of course, when you the new technology, you need someone in front of you to understand the value of your technology, sometimes it’s a little bit difficult, but we succeed in doing this, and the customer understands.

Gasgoo:  So, actually for Chinese brands, you take some time to communicate and educate them better, do you have a feeling that Chinese brands are very aggressive in taking the advice and technology or their willing to learn are very strong?

Luca: They are very strong, in fact, they always want and now more and more want new technology, and we’re supplying to them the new technology and some of them also develop new technology aggressively, and when I say aggressive I mean same level as US, Brazilian or European markets, that’s very much advanced in comparison to Chinas markets. But the GASp between Chinese market and foreigner markers are reducing more, so we need to be ready, it’s clean that they are very eager to learn, and this could be very dangerous, especially in terms of IP (Intellectual Properties), so that’s why we need to in some way protect ourselves.

Local suppliers needs help being improved

Gasgoo:  Ok now we have been talking about the OE market, but we all know that the aftermarket is much bigger than the OE market, so do you have any plans for the China aftermarket?

Luca: We are thinking about the aftermarket, its clean that not all our business lines are well fittable for aftermarket, for example when I talk about powertrains, there is no big aftermarket, because nobody in our systems should have any problems, automotive line, have a potential for aftermarket, so we are thinking about. For electronics, also there is no big market, because aGASin the products we produce in electronics, the cluster, or body computers normally should never break, for exhaust ,yes, there is something but not a big aftermarket,

Gasgoo: And then we also want to know, how your work in china sourcing is.

Luca: We are localizing more and more, for example, for electronics where we have the highest localization rate, we sell components that’s 100% localized, except some IC, some components that we buy all over the world, so this can’t be localized because of specific components made for us from a special company, but for the other comments we are highly localized. And for powertrains we are a little bit less, localization is about 40%.For exhausts we are about 80%.

Gasgoo:  80%?

Luca: Yes. For lighting we are in the startup phase so we are about 30%. But we are growing very much. And we have radius of creating a new group that will make sourcing in china not only to increase our localization rate but also export to Europe and other countries.

Gasgoo: So in Chinese market, where the identity’s side is at the suppliers, the other is at the buyers. Can you give us a general judgments or comments on china automotive suppliers?

Luca: We can say the same for supplier what we said before, there are two kinds of suppliers, there are the suppliers that come from abroad and localizing their production in china, and there are local ones. Concerning the locals, yes, there are some advantages, but local suppliers must be trained, so it request some efforts.

Gasgoo: Thank you for your time.

Luca: Thank you.

                                 All rights reserved. Please notify the source for any use