Formosa Plastics Group (FPG), Taiwan's largest petrochemical conglomerate, recently announced plans to set up a truck assembly line with a monthly capacity of 200 units at its auto plant in Taichung, central Taiwan.

FPG officials report that they will initially focus on assembling trucks, and will later integrate the operation vertically by using technology transferred from a foreign partner as well as group resources in the areas of steel supply and auto-parts production.


The truck production operation will be aimed at Taiwan's domestic market at first but will later expand to the entire Asian market, especially mainland China. To that end, the group plans to invest a total of about NT$100 billion (US$2.98 billion at NT$33.6:US$1) on both sides of the Taiwan Strait over the next few years.

According to foreign news reports, FPG has contacted at least four major international truck makers—DAF, MAN, Renault, and Mercedes-Benz--about the possibility of cooperation. The reports say that the foreign manufacturers have expressed strong interest, and negotiations are continuing.

An FPG official comments that most major European brands are having trouble penetrating the booming Asian market, which is flooded with Japanese brands, and have been looking for partners in the region to help them along. They are increasingly anxious about developing sales in Asia because annual global demand for heavy trucks has been stagnant at about 800,000 units and few markets, outside of China, are experiencing substantial growth.


The official claims that foreign truck makers are eager to cooperate with FPG because of its highly efficient management, good cost-cutting abilities, and established ties with the central government of mainland China. In addition, of course, the group has the advantage of a shared language and culture with China. Furthermore, the official adds, the group has established a good corporate reputation there.

Integrating for Efficiency

The truck venture, if it succeeds, will be part of the FPG's growing investment in the automotive business. Its passenger car production arm, Formosa Automobile Corp., operates a factory in Taichung that turns out two Daewoo models. In a bid to integrate car and truck production, the group's chairman, Wang Yung-ching, recently instructed Formosa Automobile to work with the affiliated Formosa Plastics Transport Corp., a trucking operator, in the joint planning of the proposed truck production line so as to improve the equipment utilization ratio and reduce personnel costs.

In setting up the truck production line, the group plans to help its parts suppliers improve their manufacturing capability and quality. It will also ask its tier-one parts suppliers to set up plants in mainland China sometime in the future, so that FPG can become an integrated car and truck maker there. The FPG itself will set up facilities for the production of some capital-intensive auto parts, including engines and gear boxes.

Aggressive expansion over the past 10 years has transformed FPG from a large international petrochemical group into a diversified conglomerate with operations in a wide range of fields, including power generation (at several plants in Taiwan and mainland China), steel, automobiles, electronics, and other high-tech businesses. Its goal is always to be No. 1 in the world, in all areas of business.

The group's auto business is still in its relative infancy and is far from reaching economies of scale, but it is already strongly competitive in Taiwan's domestic market. Only five years after its establishment, Formosa Automobile turned profitable in 2002.

Industry sources say that the group's success in the automotive business will be judged by its performance in mainland China, not Taiwan.

Any cooperation between FPG and Mercedes-Benz will confront the problem of existing cooperation between the German automaker and another Taiwan auto manufacturer, China Motor Corp., in the establishment of a US$235 million commercial van production venture in mainland China together with the Fujian Motor Group, an auto production firm operated by the Fujian provincial government.