The Original Equipment Suppliers Association (OESA) recently presented on February 4th its annual China Market update webinar, and as usual a lot of great information was imparted to OESA members. The presentations included a review of the "China Auto Market Dynamics" by Yale Zhang, Managing Director of Automotive Foresight in Shanghai, and a review of "China Compensation Survey Results and HR Trends and Challenges in China," by Steven Kueffner Director, International Consulting, at Towers Watson in Detroit. Neither speaker disappointed the participants.

For Mr. Zhang's presentation, he began with an overview of current economic conditions in China, which not unexpectedly were a major factor in driving the performance of the Chinese auto market. China completed 2014 with a reported 7.4% GDP growth according to Mr. Zhang, robust by most world standards but certainly below China's historical performance in the 8-10% range. This "slow down" was also accompanied by a slowdown in the rate of growth of FDI in China, from 20% in 2013 to around 16% in 2014. (Although FDI growth showed signs of improvement toward the latter stages of 2014.) Mr. Zhang also noted the steep fall in gasoline prices in China as 2014 progressed, mirroring the trend seen in the U.S. On the regulatory side, Mr. Zhang noted that seven Chinese cities now have "car plate control" laws, and the expectation of additional cities' following suit is expected to pull forward auto sales in some markets in early 2015 as was seen in late 2014. Another trend noted by Mr. Zhang was environmental law changes that are accelerating the rotation of older/heavier polluting "yellow label" cars out of the market.

In terms of the market itself, Chinese domestic vehicle production reached 23.72 million units in 2014, up 7.3% from 2013, again turning in a world market leading performance. Passenger vehicles led the way, with commercial vehicle segments declining or remaining relatively flat. China auto exports remained relatively modest at 910K units, an increase of 6.8% from 2013. VW was the leading brand on 2014 with 19.1% of the market in China, GM placed second at 9.4%, and in total the top 10 brands accounted for about 69% of the domestic market. Altogether, Chinese domestic brands accounted for about 34% of the market. As in the U.S., SUVs performed very well in China in 2014, and accounted for more than 22% of the market in 2014. According to Mr. Zhang, a large factor that will drive 2015 performance is the rate at which manufacturers continue to push out product to dealers, a practice that was employed very aggressively in 2014.

For Mr. Kueffner's presentation, overall in China salary increases at surveyed firms were at a median of 8.5% (with 25% of the surveyed firms increasing them by 10% or more, resulting in a mean increase of 8.8%). In the four major Chinese cities, staff turnover ratios averaged around 20-26%, with turnover rates being lower at the executive and managerial levels and much higher at the production level (reported to be 65% in Shenzhen according to Towers Watson). Mr. Kueffner stressed the importance of reward and recognition programs and characteristics of successful programs, including simplicity and ease of access/administration. Mr. Kueffner's presentation then shifted to the challenges in China in attracting and retaining skilled employees, proving that the China market is not unlike the other leading global automotive markets in this respect. He noted some of the key drivers in China of attraction and retention, with base pay and salary at #1 in the eyes of both Chinese employers and employees. Finally, he noted the challenges of delivering on some of the base pay programs that companies have established in China.

All in all, China remains a key player in the global automotive industry with some of the same opportunities and challenges that the global automotive industry faces, in addition to "China-unique" opportunities and challenges. Stay tuned for another robust automotive year in China in 2015.

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