China's car makers urged to learn from U.S. crisis by "thinking small"

Special Report:Global Financial Crisis

BEIJING, Jan. 3 (Chinese media) -- There's a lesson for

China's car makers in the fate of the ailing U.S. auto industry: develop

smaller, fuel-efficient models instead of betting on gas-guzzlers, industry

analysts have warned.

"We used to believe medium-sized cars would have the

biggest market in China, but actually small cars have the greatest potential in

terms of energy efficiency and price," senior engineer Chen Yilong of the

Society of Automotive Engineers of China told Chinese media in December.

The U.S. auto makers' plight stemmed from their

decades-old love affair with big cars while Japanese carmakers gained a

stronghold by appealing to America's fuel-conscious consumers, said independent

auto analyst Jia Xinguang.

"U.S. car makers should not have given up the market

for small vehicles," said Jia, who urged Chinese auto makers to follow the path

of Japan in terms of safe, fuel-saving technologies.

"The fall of the U.S. car industry is not a recent

thing; it has been going on since the 1970s, when crude oil prices almost

tripled because of output cuts by major oil producers," said Jia.

During that crisis, Japan-based Toyota expanded its

presence in the United States with cheap, fuel-efficient cars. It now has

surpassed most rivals with sales only second to General Motors on the U.S.

market.

The most fuel-efficient U.S.-made vehicles had a

combined fuel economy of 28 miles per gallon but still lagged Asian models such

as the Toyota Yaris (31 mpg) and the Honda Fit (30 mpg), Forbes magazine

reported in August, citing estimates of the U.S. Environmental Protection

Agency.

Such seemingly small differences might be neglected

in good times but became important to consumers hit by the financial crisis,

said Chen.

Detroit's "Big Three" car makers -- GM, Ford and Chrysler -- saw their sales ebb in North America in recent years. Two, GM and Chrysler, warned of collapses amid the financial crisis and got 13.4 billion U.S. dollars





in government loan aid in December.

It would be an unsustainable pattern of growth for

Chinese car makers to merely rely on cheap labor and low auto parts prices, Jia

added.

Official data show sales of compact cars dipped in

China in 2006 and 2007, when sedan sales rocketed more than 20 percent annually.

Chen attributed the decline to producers' sluggish

efforts to improve vehicle performance and quality, combined with inadequate

support from the government.

The best result Chinese compact cars earned in car

crash tests last year was three stars out of a five-star rating system.

Better technologies are needed and the government

should give policy support to hybrid vehicles using new energy sources, said

Chen.

He warned that domestic brands could be disadvantaged

if the technology used in compact cars didn't catch up with global rivals.

China's vehicles sales fell 14.6 percent year-on-year

in November under the influence of the financial crisis. Growth in the first 11

months stood at 8.5 percent.

The National Development and Reform Commission has

mapped out a plan to boost vehicle consumption, targeting an annual rise of car

sales higher than the country's gross domestic product in the next three years.

The plan included cutting consumption taxes on

low-emission and economical cars and supporting hybrid vehicles.