Taiwan-China Auto-making Partnership a Way to Avoid Duties

DMC and Yulon are in mutually-beneficial quid pro quo

While the Economic Cooperation Framework Agreement (ECFA) between China and Taiwan is making business more profitable for the auto parts industry on both sides with favorable import duties, carmakers have yet to be included as beneficiary.

However some automakers in Taiwan and China are developing models in joint ventures for launching in respective markets, a savvy strategy to circumvent paying high import duties levied for cross-straits trade.

China Motor Corp. (CMC) of Taiwan and Southeast Motor of China have taken the lead with a joint venture in June of this year, planning to launch the first model one year later or around summer 2013 to be sold in China and Taiwan.

It's a breakthrough for CMC as the company used to make cars primarily designed by its Japanese partner Mitsubishi Motor, but now engages in independent design jointly with its mainland-based affiliate Southeast Motor, said CMC president Liu Hsing-tai, who believes that in-house design is feasible backed by years of car production experience accumulated by CMC and Southeast Motor.

Actually CMC started to play a part in the design process with its Japanese partner Mitsubishi Motor several years ago, with CMC's R&D people contributing to the Colt Plus launched in Taiwan a couple of years ago, whose success encourages CMC to be more ambitious in design, even trying to launch new models incorporating higher proportions of in-house design.

But the main hurdle is the relatively tiny car market in Taiwan where a single model sells at the most 12,000 units yearly, which is hardly enough to support its R&D cost of several billions of NT dollars, Liu said, confirming the harsh reality of the car sector in Taiwan and why CMC used to be an OEM for Mitsubishi.

The solution may be to cooperate with Chinese partners or jointly explore the China market, hence leading to CMC's joint venture with Southeast Motor, and their first model to be launched next year is also designed in partnership.

DMC Truck
CMC's parent company, Yulon Motor of Taiwan and maker of the Luxgen line, and Dongfeng Motor Corporation (DMC) of China are in a quid pro quo, where Yulong Motor will produce DMC trucks in Taiwan, to be unveiled by the end of 2012, in exchange for sales support of Luxgens in China.

DMC, a leading truck maker and exporter in China primarily focused on medium and heavy-duty trucks, decided to have trucks produced, sold in Taiwan to avoid Taiwan's high import tariffs levied on assembled vehicles shipped from China.

China is the world's largest automobile market where annual sales reached 18.5 million units in 2011, of which DMC accounted for 3.06 million units. With strong sales network in China, DMC believes many possibilities and opportunities for cooperation exist between cross-strait automobile industries.

Biggest Investment

Among investments by China's automakers, the one filed in June by the UO Car Company, Macau-based car dealer under the state-owned CITIC Group (formally China International Trust and Investment Corporation), was the highest as the operator proposed to invest another NT$95 million (US$3.17 million) its Taiwan-based subsidiary.

UO Car offers complete after market services and, with the investment, plans to meet higher demand for auto parts in Taiwan through expansion of its car dealer business on the island.

It is the second time for the CITIC Group to apply to invest on the island via its Macau-based affiliate, after having set up the UO Car subsidiary in Taiwan last year.