Foreign Automakers Expand in China
2011/08/26 | By Michelle Hsu
To dampen new car demand, Beijing has scrapped policies promoting new car purchases and tightened restrictions on new car registration. The effect of the two measures was felt in the first half of this year. According to the China's Association of Automobile Manufacturers (CAAM), auto sales in China fell for the first time in April and the pace of retreat widened to 3.987% in May. In June, auto sales climbed by 6.4% year-on-year, with 1.1 million vehicles registered that month.
Auto sales in China during the first six months of the year amounted to 9.32 million units, up 3.4% from one year earlier, according to the CAAM. The growth rate marks a sharp deceleration from the 45% rate posted in the same period of last year.
Foreign Investment
While most of China's automakers have adjusted their operations to cope with the Beijing's policy for cooling down the overheated auto sales in China, sales of foreign automobile brands has continued to rise. This has encouraged foreign automakers to accelerate investment in China, which has become a major source of revenue growth at a time when their home markets in the U.S. or Europe are lagging under the sluggish economy.
To streamline the operations of their China-based auto plants, almost all foreign automakers have set up new China-based auto plants with their own OEM suppliers of key parts suppliers located nearby. Foreign investment is therefore likely to contribute significantly to China's auto parts industry both in terms of output and technology upgrading.
During the two days of June 27-28 alone, three major foreign investment projects were announced—Nissan, DaimlerChrysler, and Volkswagen (VW), respectively, unveiled new investment plans in China that together could increase annual auto output in China by 1.45 million units, representing about 8% of China's annual auto sales.
On June 27, Nissan announced that it would increase the annual output at its China-based auto plants by 600,000 units within six years, aiming to boost its market share in China to 10% from 6.2% now.
DaimlerChrysler announced plans to increase its cooperation with Beijing Automobile Works Co. (BAW) with an additional fund of 2 billion euros to expand car production and construct a new engine plant, scheduled to begin operation in 2013.
On June 28, VW received approval for its two new investment projects, which in total will increase the annual productivity of its China-based plants to 3 million units. VW is now the second largest foreign automaker in China, only trailing General Motors (GM) which maintained its top market position with annual sales amounting to 2.35 million units in China last year, up 29% from the previous year.
Under its target of an annual sales growth of 15% for this year, GM will expand its China-based sales outlets to top 100 ones within this year, while working closer with its local partner, SAIC Group, to expand production.
Ford's Grand Plan
Earlier in June, Ford Motors announced that it would continue to increase its investment in China, with plans to make Chongqing, the capital city of Sichuan Province in central China, its second largest production base globally after Detroit in its home country.
Ford Motors' new auto plant in Chongqing would start operation early next year, with an annual production capacity of over 700,000 units.
In order to support the operations of its new Chongqing-based factory, Ford Motors is proposing to set up two new auto parts plants near its Chongqing factory. One will make engines and the other gearboxes, with an annual output of 400,000 units each.
Ford says it will introduce 15 new car models in China by 2015. Only a few will be imported and most will be produced in China.
Despite the market slowdown in China during the first half of this year, Ford Motors increased sales in China to 230,068 units in the first five months, up 15% from the year before, bolstering Ford's confidence to invest in China.
Market re-structuring
Statistics show that China's annual auto sales topped 18 million units in 2010. J.D. Power, an international market research institute, forecasts an annual growth of 15% for China's auto sales in 2011. In China, according to the J.D. Power, around two thirds of the new car buyers are those with an annual personal income of less than US$5,000.
In order to cater to the cash-strapped consumers, Japanese Honda and Nissan have been planning to launch cars in the price range of 50,000 RMB and 70,000 RMB.
In fact, most leading international auto brands saw high growth of their sales in China during the first several months. When China's auto sales growth slowed to 4.06% during the first five months, most leading foreign auto brands high record high growth in sales—BMW sales surged 71%, Mercedes-Benz soared 70%, and both Cadillac and Volvo up more than 100% from the same period of last year. Comparatively, Audi's growth looked relatively moderate though its 28% growth is several times higher than the market's average.
Starting from this year, China's top-level auto market would be joined with Swedish SAAB as its parent company Spyker confirmed in May that it would sell a stake of 24% in SAAB to China's Pang Da Automobile Trade Co. at a price of 65 million euros in addition to the SAAB automobiles at a price of 45 million euros.
Pang Da Group is a specialized auto trading company that has been the top auto sales group in China since 2006. Earlier in 2009, Beijing Automobile Works Co. (BAW) acquired a part of assets and technology from SAAB, but it's not enough to help the Swedish automobile company solve its financial problem. Previously, SAAB offered its cars through 20 sales outlets in China. Now, Pang Da Group as its major shareholder would promote its sales through the group's nation-wide sales network of over 700 outlets around China.