Yulon Group Joins Nissan Development Projects

Kenneth Yen, CEO of the Yulon Group, Taiwan's largest automobile-manufacturing conglomerate, recently disclosed that the group's flagship company Yulon Motor Co. is participating in the development of new Nissan car models for sale in mainland China.

Cooperation with Nissan, he stated, will generate significant revenue for his group and serve as a milestone in Yulon's emergence as a world-class automaker with the ability to develop international car models.

Yen made the statement at an interview with local press in May attended by Yulon president Chen Kuo-rong, Yulon-Nissan (an automobile sales and R&D venture with Nissan of Japan) president Liu Yi-chen, and China Motor Corp. president Huang Wen-cheng. China Motor is an auto-production subsidiary that locally produces Mitsubishi car models.

Growing Regional Presence

Yulon has been the most active among local automobile conglomerates in internationalizing its operations. Yulon Motor now owns a 75% stake in Nissan Motor Philippines Inc. (NMPI) and a 40% stake in Aeolus Motor Corp. of mainland China (a subsidiary of the Dongfeng Automobile Group), which currently produces passenger cars redesigned by Yulon from Nissan's original blueprints. China Motor has a 50% stake in South East Motor Corp., a producer of redesigned Mitsubishi commercial vehicles and passenger cars in mainland China. The Taiwan company will also cooperate with DaimlerChrysler Group and Fujian Automobile Group to set up a Mercedes-Benz truck production venture in China soon.

According to Yen, Yulon's cooperation ties with Nissan have intensified since the division of Yulon Motor (YLO) and Yulon-Nissan Motor (YLN) last year. YLO now concentrates on contract automobile production for various auto brands, while the latter (in which Nissan has a 40% stake) is responsible for R&D, overseas investment and other related operations. "Nissan used to treat Yulon as an overseas investment, but now we are seen as a part of the Japanese company," says Yen. According to the CEO, Yulon will greatly benefit from this closer relationship as Nissan will pay design and development fees to the Taiwan affiliate.

Yen claims that many people worried about Yulon's weakened R&D capability after the separation, but in fact the original R&D unit, the Yulon Asia Technical Center (YATC), was divided and expanded into two centers, the Yulon Asia Design Center (YADC) and Yulon Asia Engineering Center (YAEC). The two centers have the same operating structures as Nissan's, Yen says. YADC and YAEC recruited most of its new employees from other Yulon units, Yen says. Nissan even asked Yulon to build a new building for the key centers. "Nissan is very serious about developing long-term and stable cooperation ties with Yulon." Yen says.

YLO president Chen Kuo-rong explains that Nissan used to design car models for three major markets: Japan, America, and Europe. But the company began to make minor design modifications to its Taiwan produced models in order to better suit local consumer requirements. "The situation has changed because mainland China has became a focal automobile market," Chen points out, "Nissan has overhauled its product mode to quickly win market share in China." As part of this overhaul, he says, Yulon can bring its experience in developing car models for the Chinese market, Chen says.

Yulon also has been playing an increasingly important role as a bridge between Nissan and partners in China. For example, it was a key mediator in the establishment of the Dongfeng-Nissan Motor Co., a joint venture of the two parties in China to produce commercial and passenger vehicles.

Chen says that following Dongfeng-Nissan's introduction of a new sedan model this year in China, Nissan plans to roll out seven strategic car models in the coming few years, in which Yulon will play a vital R&D role.

Multiple Brands in the Making



Yulon Group is also developing cooperation ties with other big global auto brands, including General Motors (GM) of the U.S. and Renault of France, first in Taiwan and later perhaps in mainland China or the wider Asia-Pacific market.

Yulon and GM recently signed an agreement to set up the Yulon-GM Motor Co. in Taiwan, which commissions YLO to locally produce some passenger car models in the initial stage. The venture is aimed at boosting the local market share of the world's No. 1 automaker.

Yulon-GM is capitalized at NT$2 billion (US$64 million at US$1:NT$31.3) initially. The new venture will push a series of locally produced Buick cars in Taiwan and act as an agent for importing Opel cars and Cadillac limousines. Most of the top management come from Yulon, including Chen, who is chairman.

Yulon is also the local agent of imported Renault cars and is intensively negotiating with the French partner over issues concerning the local production of some models.

"Yulon Group's successful multiple-brand operation strategy in Taiwan has helped the group transform into an open value-chain system. The group has over 10 business affiliates (including repair and maintenance, auto leasing, travel information, used-car sales, call-center services etc.) that can provide all kinds of automobile-related services for different car brands.

Chen stresses that YLO is expected to take part in Renault's Asia-Pacific production/sales restructuring plan, aimed mainly at the huge mainland China market, and to become an important partner. The project is expected to maximize YLO's automobile production capacity in the near future. Renault plans to expand annual capacity from about one million cars currently to four million in the future, Chen says. Meeting this goal, he says, will require Renault to re-think its global operations and perhaps create new opportunities for YLO.

First Impressions

Styling is one of the core competitive factors of a car model, and very few global automakers will release such design information for new cars to their overseas partners in the way that Nissan has with Yulon.

In addition to engine/transmission and chassis/suspension systems, which require long-accumulated technical capabilities and know-how, the styling of a car is a decisive factor in shaping a clear image of the product in consumers' minds. "An iron rule in automobile marketing is that no one will buy a car with a powerful engine if it fails to impress visually," the source says, "So a car model's exterior styling is a major factor in determining the market value of a car."

With over 50 years of experience and a commitment to upgrading its design capability, Yulon is now one of the strongest car designers in Taiwan.

The Yulon Group has also been a pioneer in expanding beyond Taiwan's borders, especially in mainland China where it enjoys close ties with high-ranking government officials.

In the first three years (1998-2000), the profitability of Yulon's mainland operations was in steady decline. In 2000, China's Dongfeng Group, one of the top-three auto producers there, came to visit Yulon and the two parties immediately formed a joint venture--Aeolus--in 2001. In 2002, Yulon's net profit grew by nearly eighteen-fold from 2001 due mainly to strong sales of the Yulon-redesigned Bluebird sedan. In 2003, the company posted profits of around NT$8 billion (US$256 million) in China, most of it from the Bluebird and the new Sunny sedans made by Aeolus.

According to an industry insider familiar with Yulon's business, Yulon's strong performance in mainland China attracted Nissan's attention and triggered the Japanese partner's intention to directly cooperate with Dongfeng rather than through a Taiwanese partner. This resulted in the establishment of Dongfeng-Nissan, after which Aeolus was forced to shift auto production rights to the parent Dongfeng, reducing its role to that of an agent for Dongfeng-Nissan produced cars. In a bid to compensate Yulon's loss, Dongfeng and Yulon set up the Dongfeng-Yulon Motor to sell Dongfeng-produced trucks and buses.

Yulon's profits have surged in the past two years and the group expects the halcyon days to last for at least another one to two years. For Yen, the insider reports, the most important thing for Yulon's future development may not be profitability but making the right decisions to maintain the group's momentum in China and navigate past the challenges that are certain to emerge in the mercurial market there.

Table:

Yulon Group's Multi-Brand Operations in Taiwan and Mainland China
YLO	YLN	China Motor (CMC)
1. YLO: Local production of Nissan passenger cars in Taiwan 2. YLO: Local agent of Renault cars of France, Opel of Germany, and Cadillac of the U.S. 3. Dongfeng-Yulon: Distributor of Dongfeng-made trucks and buses in mainland China 4. Yulon-GM: Local production of Buick car model; local agent of imported Opel and Cadillac cars	1. YLN: Local agent of locally produced and imported Nissan (including Infinity) car modes 2. Aeolus (in which YLN has a 40% stake): Distributor of cars made by Dongfeng-Nissan	1. CMC: Local production of Mitsubishi cars; local agent of imported Mitsubishi cars 2. CMC: Local production of the Town & Country minivans for Chrysler of the U.S. in 2006 3. South East Motor (in which CMC owns a 50% stake): Production of CMC-redesigned cars and commercial vehicles in China 4. CMC: Owns a stake in DaimlerChrysler Vans (China) Co. (DCVC) in China to produce Mercedes-Benz commercial vehicles in coming few years

Source: Yulon Group