Canadian Manufacturing

Carmakers pressured in Chinese joint ventures: consultant

by The Canadian Press   

Manufacturing China Chinese market GM honda Nissan

Competition revs up in China’s overcrowded car market

SHANGHAI, CHINA—More car manufacturers are forming joint ventures in China, where their new brands are being sold for less than their current modelscreating competition in an already crowded auto market.

At this week’s Shanghai Auto Show, international carmakers unveiled several vehicles that will be affordable to millions of Chinese consumers.

General Motors Co. revealed its 630 sedan, the first model from its Baojun badge developed with Chinese joint venture partners Shanghai Automotive Industry Corp. and Wuling Automobile Co. The sedan will sell for 70,000 to 100,000 yuan—about C$10,700 to C$15,300.

Honda Motor Co. showcased its compact four-door S1 while Nissan Motor Co. released an unnamed car that it plans to sell under the Venucia brand next year.


These brands will only be sold in China, where they’ll create competition for foreign automakers’ existing entry-level models.

“Competition wars are about to become serious in China as vehicle market growth cools, and the fight for market share will intensify,” said IHS Automotive analyst Paul Newton.

And some industry experts say it’s a new tactic being used by China’s government, which is unhappy with its state-owned automakers’ market penetration.

When global automakers entered China about 25 years ago, they had to sign joint ventures aimed at helping local partners learn and grow. Foreign automakers were allowed to keep their technology and other intellectual property in those original agreements.

But now, manufacturing Chinese models is “the new cost of market access,” says Mike Dunne, a consultant with the Asian auto market consultancy firm, Dunne & Co.

He says Beijing authorities drew up a new set of rules requiring car makers to share their technology if they want to expand in China.

Car makers won’t admit it’s happening because it could upset authorities, says Dunne, who is also writing a book on the history of General Motors in China.

Kimiyasu Nakamura, president of Nissan’s Dongfeng joint venture, did acknowledge its new car could “cannibilize” sales of its entry-level Sunny.

GM denies it was pressured into launching Baojun, saying it decided to create the brand four years ago to sell cars in China’s interior cities, where it sees great potential for growth.

PSA Peugeot Citroen Chief Executive Philippe Varin said developing a third brand was “part of the deal” for its new joint venture with Chang’an Automobile Group, according to a report in the Financial Times in March. Peugeot would not comment on the report.

Volkswagen AG, Toyota Motor Co. and Hyundai Motor Co. are also considering launching China-only brands, according to Dunne. Ford China CEO Joe Hinrichs, however, has ruled out the idea.

China’s auto market has been the world’s biggest for two straight years and it’s becoming crucial for global car companies that are seeing slower sales in Western markets.

“This is bad news” for automakers, said Klaus Paur, an analyst at Synovate Motoresearch.

“These additional brands are competitors to Chinese brands but also competitors to international brands, so overall nobody’s eager to push in this direction,” he said.

Both Paur and Dunne say foreign makers will likely circumvent Beijing’s requirements at least partly by using older technology in the new brands.

The Baojun 630 is based on GM’s Optra platform, which is at least eight years old. The Everus S1 is based on the old City.

But they will add further competition to a market that is already crowded with 84 brands and at a time when China’s auto market is expected to cool to about 10 per cent a year.


Stories continue below

Print this page

Related Stories