Taiwan's Yulon Motor Co. and its Japanese partner, the Nissan Motor Co., recently announced a plan to boost their cooperation to a higher plane and strengthen their competitiveness in Asia, especially in the huge mainland Chinese market.

Under the plan, Yulon will be divided into two separate companies. The original operation will be named, provisionally, Yulon Original (YLO), and will continue as a multi-focus auto manufacturer; the other will be a joint venture, tentatively dubbed Yulon New (YLN), which will concentrate on the development of the Nissan- brand business in Taiwan and the rest of Asia.

Carlos Ghosn, president and CEO of Nissan, and Kenneth Yen, vice chairman of Yulon, signed a memorandum of understanding for the deal during a recent videoconference. Final details are expected to be announced by the end of the year.

"The new company will allow us to grow profitably in Taiwan, and it will support our growing presence in the burgeoning mainland Chinese market," Ghosn commented. "Yulon and Nissan have a long history of working together. This new venture will benefit from Nissan's global scale and experience, as well as Yulon's expertise and strength in the region."



Nissan has just completed the first year of a three-year plan aimed at maintaining the highest level of profitability in the industry and assuring profitable growth in the future, and the new arrangement with Yulon, Ghosn added, marks an important step in this "Nissan 180" plan. The plan's targets are annual sales of one million Nissan cars, profitability of 8%, and zero-debt corporate operation by 2005.

The company is well on the way to achievement of these goals, recording a global sales increase of 6.7% in the past fiscal year and an operating margin of 10.8%.


On the Way


Yen has since reported that Nissan will have a 40% share in the proposed new company, with Yulon owning the rest. The company will operate throughout the value chain for the Nissan brand, from engineering and purchasing to sales and marketing support, with the exception of manufacturing activities in Taiwan. YLN will support Nissan's development in the mainland Chinese market, where the company has recently announced a partnership arrangement with the third-largest automobile conglomerate there, the Dong Feng Automobile Group.

In cooperation with Dong Feng, Yulon currently has a 40% stake in the Aeolus Motor Crop., which makes Yulon-redesigned Nissan models in the mainland. This and other Yulon holdings there will be integrated into YLN, which will have an initial capitalization of NT$3 billion (US$86.5 million at NT$34.7:US$1).

Noting that this year marks Yulon's 50th anniversary, Yen reports that YLO will keep up with its current operations including contract auto manufacturing, the local dealership sales of imported (Renault) cars, the development of land resources, and the search for other business opportunities.

YLO will also operate as a holding company in building up a "Mo-life" auto repair/travel-information line, and in developing other new business opportunities. As part of the company's transformation, its capitalization will be reduced to NT$13.7 billion (US$395 million) and Nissan's current 25% stake will be transferred to YLN.

"The first priority of an automaker," Yen states, "is to pursue an economic scale of production. That's why we decided to divide our operation into two companies so as to maximize our production capacity in Taiwan and mainland China."

Yen reports that Yulon's Taiwan plant currently turns out 120,000 to 150,000 cars a year, with an equipment utilization ratio of 55% to 60%. Membership in Nissan's international division-of-labor scheme allows all of the plant's production capacity, R&D capability, and manufacturing resources to be utilized more efficiently.

Yen goes on to report that the proposed new company in the mainland, New Dong Feng (with Nissan having a 50% ownership stake) will have a planned capacity of 500,000 units in 2006 and 900,000 in 2009.

Nissan and Dong Feng plan to set up a new 50-50 joint venture in the mainland to produce passenger cars and commercial vehicles, all of which will carry the Nissan logo. It will first produce Sunny and Cefiro models.

The Yulon vice chairman says that the group's Yulon Asia technical Center (YATC) will be transferred to YLN, and will intensify its role in Nissan's international auto development projects. YATC started operating in 1999 as Nissan's first Asian R&C center outside of Japan, and fourth in the world.

Yulon was established in 1953 as Taiwan's first automaker, and now it has also become the first of the island's car manufacturers to be a major player in the Asian—especially mainland Chinese—market. Its ties with Nissan go back to 1957, and together the two have sold abut 2.5 million cars in Taiwan since that year.

The Taiwan company's ambition to build up its own auto design and manufacturing capabilities has, at times, led to tension with its Japanese partner. Yulon set up its own engineering center, the predecessor to YATC, in the early 1980s to develop its first homegrown model, the Feeling 101 (which, however, used a Nissan engine). That move led Yulon's former distributor, the Chinese Automobile Co., to stop selling Yulon models; and that, in turn, forced Yulon to establish its own island-wide sales network.

The Feeling 101 project also rubbed Nissan the wrong way and gave rise to doubts about Yulon's loyalty. Relations between the two partners were further strained by Yulon's declared intention to enter into cooperation with General Motors of the United States. Finally, though, the idea of cooperating with GM was dropped and Nissan gained a larger stake in the Taiwan company.

Although the Feeling 101 was a market failure, it resulted in the formation of a young and talented development team which was a major factor in the company's series of hot-selling cars in ensuing years, including the new Sentra and Cefiro.

The Yulon Group today is still Taiwan's largest carmaker, with annual revenues of about NT$200 billion (US$5.8 billion). It has two auto production affiliates, Yulon and the China Motor Corp., which turns out vehicles with cooperation from Mitsubishi of Japan.

Yulon's closer tie-up with Nissan has given the local auto industry a shock, but most local rivals believe that the impact on them will not be too great because the deal will leave Nissan's sales and maintenance channels on the island unchanged.

Su Ching-yang, president of Yulon's affiliate, China Motor, says that the Nissan-Yulon arrangement will benefit the Taiwan automaker greatly through the expansion of its production and marketing reach, especially in mainland China. This will give Yulon a strong advantage over its local rivals in the mainland market.