China's Drive for Local Car Brands
It all started with Beijing Jeep, China's first auto joint venture, back in 1984. And ever since, the world's biggest auto players have spent billions of dollars on manufacturing and marketing in China, trying to gain a foothold in what has become the world's most dynamic car market. Confident that overseas investment was the surest way to modernize an aging industry originally set up by Soviet advisors in the 1950s, China's policymakers welcomed the foreigners.
Now it's payback time. Last year, China sold 141,773 vehicles overseas, the first time it exported more than it imported. And in the first quarter of this year, exports of all vehicles -- including trucks -- grew by 140%, while those of passenger cars soared 460%. Though most of those go to Russia, the Middle East, and Southeast Asia, they're likely to arrive in Europe and the U.S. within three years, says Yale Zhang, a Shanghai-based director for market-watcher CSM Worldwide.
The growing exports are part of a drive to strengthen local auto brands as more Chinese become mobile. Even as Beijing seeks to cool down much of its booming economy, the government is guaranteeing loans for domestic carmakers and ultimately aims to boost the domestic market share of Chinese-branded vehicles to 60% by 2010, from less than one-fifth today (see BW Online, 05/30/2006, "China's Carmakers at the Crossroads"). And China's State Development and Reform Commission is considering a policy that would require both Chinese and foreign auto manufacturers to do more research and development and design work on the mainland.
"A year ago, if you talked to any local player it would be all about attracting a foreign partner," says Jack Perkowski, Chairman and CEO of Beijing-based auto components manufacturer Asimco. "Now that's really seen as a negative. Everyone is talking about developing their own vehicles and technology."
While China has dozens of small auto makers, three big names are poised to dominate. Wuhu-based Chery Automotive has become the leading local brand -- and No.7 in China -- with successes such as its $3,500 QQ. Sales for Hangzhou-based Geely Automobile Holdings grew by more than 50% last year, to 150,000 units on the back of hits such as the $7,125 Free Cruiser. "Our plan is to become a major exporter," says Geely Executive Director Lawrence Ang, who expects to sell in the U.S. as early as 2008.
And SAIC, the Shanghai-based partner of both General Motors (GM) and Volkswagen, announced in April that it will spend more than $1.7 billion over the next five years to create its own brand. SAIC plans to make more than 30 models based on five basic platforms over the next few years. And the company may export to Europe as early as next year, says SAIC spokesman Andy Chen. "SAIC is very confident that we will successfully step onto the global stage," he says.
One way to do that is by poaching talent from the multinationals. The general manager of the international arm at Chery formerly worked at Daimler Chrysler (DCX), while the head of its engineering institute is a Ford Motor (F) veteran. SAIC gained more than 150 British engineers when it purchased the intellectual property of Britain's Rover last year.
And Wang Xiaoqiu, the general manager of SAIC Motor (SAIC's subsidiary that will develop the new brand), is a 14-year veteran of SVW, the parent company's venture with Volkswagen. Meanwhile, SAIC Group's chief engineer and designer who oversees research and development at the smaller company, has worked in the U.S. for GM, and parts maker Delphi.
The Chinese are also looking to reach the global stage by manufacturing abroad. Chery in April started assembling a sedan and an SUV in Kaliningrad, Russia, and last year it began producing the QQ in Iran. And Geely this summer plans to start building the Free Cruiser in Malaysia, and is considering factories in Russia and Mexico -- to eventually supply cars to Western Europe and the U.S.
Despite the ambitions of the Chinese, don't count out the foreigners. In fact, many of them may use China as a manufacturing base for their own exports. Honda (HMC), for instance, dispatched 10,000 Jazz compacts to Europe from a factory in Guangzhou in 2005, and expects to boost that to 25,000 this year. Still, there's little doubt that Chinese cars -- with either domestic or foreign nameplates -- will soon be hitting dealerships worldwide.