DaimlerChrysler Vans (China) Co. (DCVC), a joint venture between DaimlerChrysler AG (DCAG) of Germany, Fujian Motor Industry Group of mainland China (FMIG), and Taiwan's China Motor Corp. (CMC), recently became the first foreign automobile venture to be approved in China since the government began putting the brakes on the mainland's overheating economy in early 2004.

Huang Wen-chen, president of CMC, says that the mainland government's support of DCVC underscores the strong potential of the venture.

DCVC will produce the Mercedes-Benz Sprinter and the new Viano/Vito van family models at a plant to be built in Fuzhou, Fujian province. The plant is scheduled to begin production of the Mercedes-Benz Sprinter and Vito/Viano van models in 2006. Annual production capacity is estimated at 40,000 units in the initial stage, though the factory could churn out 60,000 units under a double-shift work schedule. Total investment in the venture will be about 160 million euros.

The DCVC project was long mired in red tape until Kenneth Yen, vice chairman of Yulon Group, the parent group of CMC, pulled strings with high government officials in China to get the ball rolling. In future, the venture will only need to get provincial government approval for new model car production--a far easier task than dealing with the central bureaucracy.

First Taiwan Automaker in China



CMC, in partnership with Mitsubishi Motors of Japan, is the No. 1 commercial truck and van maker in Taiwan. In late 1996, the Taiwanese automaker cooperated with FMIG, a provincial government-run auto conglomerate, to set up South East Motor Corp., a 50-50 auto production venture specializing in commercial vehicles redesigned by China Motor from Mitsubishi-developed chassis. South East now also produces some sedan models and the company is expected to become one of the top-10 automakers in mainland China in 2005.

DCAG is currently the fifth-largest automaker in the world. With the DCVC project, CMC has become the first shareholder from a third place in DaimlerChrysler's overseas auto production ventures.

DCVC will become the production center for DCAG's Mercedes-Benz light commercial vans in Asia. It will also modify van models to meet the needs of the regional market, and in future it will export vehicles to other Asian nations. In addition, all of the aftermarket (AM) auto parts of the Sprinter vans in the global market will be supplied by DCVC. According to CMC's President Huang, DCVC's export-oriented business strategy helped the project to win permission from China's central government.

In the initial stage, Huang says, DCVC is expected to export 5,000 to 6,000 Mercedes-Benz commercial/family vans per year, including at least 1,600 units to Vietnam. The company expects to increase the export ratio to over 20% in the future. CMC has not excluded the possibility of importing DCVC-made Mercedes-Benz vans for sale in Taiwan in the future, Huang adds.

Faster and Stronger

The tie-up with DCAG is expected to further accelerate the Yulon Group's development as a regional automaking powerhouse. Both CMC and the Yulon Motor Corp., the Taiwan partner of Japan's Nissan, have earned a reputation for their ability to redesign car models to meet the tastes of regional consumers.

Although Yulon plays important roles as a car redesigner and parts exporter for its international partners, the company still lacks a big-enough stage to seal its place in the international market. The booming Chinese market could be that stage, and Yulon is wasting little time to tap into it.

A senior industry insider said that Yen is deeply aware that both Yulon and CMC are technically dependent on their Japanese partners, and the two are therefore loathe to rock this relationship by going it alone in the mainland. Their best strategy, the insider says, is to persuade their partners to join them in the cross-strait move.

Indeed, this is the route the two firms have been following. Two years ago, Yulon Motor invested in Aeolus Motor Corp., the passenger-car production arm of the Dong Feng Group, to produce Yulon-redesigned Nissan car models in mainland China (Aeolus is now a subsidiary of the new Dong Feng Motor Co., Ltd., a 50-50 joint venture between Dong Feng Motor Corp. and Nissan). CMC's mainland China affiliate, South East, is scheduled to sell shares to Mitsubishi in exchange for a chance to become Mitsubishi's auto production base in China. CMC also plans to invest in Mitsubishi to seal ties with the Japanese technical partner.

The DCVC is Yulon's latest move in the mainland market. The venture is also expected to help CMC by integrating the latter's operations with South East in the light commercial-vehicle market.

Both DCVC and South East produce commercial/family vans, but their product positioning and price levels will be totally different. DCVC's high-level and high-price Mercedes-Benz vans are expected to complement South East's lower-end offering to achieve a more comprehensive product line.

In addition, the source says, DCVC's scheduled van-production plant will be located in an automobile production zone developed by South East in Fuzhou, Fujian province. That is expected to create new business for auto-parts makers and help them reach a scale of economy, which will help South East cut costs further.

DCVC will also integrate the best suppliers in the auto production zone with DCAG's global auto parts supply chain. Such opportunities are expected to increase the quality and reduce the delivery time of auto parts makers there, including over 30 Taiwan-based suppliers. It should also help these suppliers expand onto the international stage.

Foreseeable Markets

Some industry analysts in Beijing are optimistic that Mercedes-Benz's renowned quality and durability will ensure the success of the DCVC venture. In addition, both CMC and South East are leaders in China's commercial vehicle market.

Another industry analyst predicts that the DCVC venture will further strengthen CMC's competitive edge over local counterparts on both sides of the Taiwan Strait. With two auto production ventures in mainland China, CMC can ship mainland-produced vehicles to Taiwan after trade barriers between the two sides are removed. Such division-of-labor scheme will provide future strategic flexibility for CMC and the Yulon Group. It will also help the automakers expand internationally.

CMC acquired a 16% stake in its car distributor in Taiwan, Fortune Motors Co., Ltd. In 2003. According to a CMC official, the acquisition will help CMC set up a comprehensive auto sales network in mainland China. The official says that Fortune's Chinese sales network will sell both Mitsubishi and Mercedes-Benz series models.