China Okays Yulon Group's DCVC Joint Venture Project for Vans

Taiwan's Yulon Group recently claimed that its application to cooperatively establish DaimlerChrysler Vans (China) Co. (DCVC) in mainland China has been approved by the central government in Beijing. The joint venture between international automakers is the first approved by the mainland's government since it mapped out its 11th five-year economic development plan.

To penetrate the commercial vehicle sector in mainland China, in late 2004 DaimlerChrysler teamed up with the Fujian Motor Industry Group (FJMG) and Taiwan's China Motor Corp. (CMC), an affiliate of the Yulon Group, to create DCVC.

DCVC plans to produce the Mercedes-Benz Sprinter and Viano/Vito vans at a new plant in Fuzhou, Fujian Province. The plant will commence production in 2006 and is expected to have an annual production capacity of 40,000 units.

In Taiwan, Yulon Motor, the flagship company of the group, produces Nissan cars and GM cars and also imports Renault cars.

International Ties

Yulon also has a stake in Aeolus Motor Corp., the passenger-car manufacturing subsidiary of China's Dong Feng Automobile Group, the No. 1 automotive conglomerate in China.

Yulon affiliate CMC owns a 50% stake in South East Motor Corp. of mainland China, which produces both commercial vehicles and passenger cars that CMC has adapted for the Chinese market from Mitsubishi blueprints.

To date, Yulon has also developed long-term cooperation ties with DaimlerChrysler of Germany/U.S., which owns a major stake in Mitsubishi; Renault of France, which owns a majority stake in Nissan; Mitsubishi of Japan; FJMG of mainland China; and GM of the U.S. Yulon recently became GM's local agent for imported models and is preparing to introduce a Taiwan-made Buick car model in 2006.

The DCVC Joint Venture

Huang Wen-cheng, president of CMC, says that all of the preparatory work to establish DCVC has been completed. DaimlerChrysler will have a 50% stake, while FJMG and CMC will hold 33% and 17%, respectively.

The DCVC chairman will be Y.Z. Ling, currently chairman of FJMG, while the venture's president will be assigned by DaimlerChrysler. CMC will send three ranking executives from its Taiwan offices to serve as DCVC vice presidents.

Yulon's chief role in the DCVC joint venture has been to act as a bridge between DiamlerChrylser, which wants to tap the huge Chinese automobile market in an efficient and safe way, and mainland China automakers, which wish to gain strong product competitiveness and technical support from foreign partners.

For example, DCVC's van plant will be located in the Qingko automobile industrial zone in the city of Fuzhou, Fujian Province, mainland China. The DCVC facility will be near

South East Motor Corp.'s existing plant, allowing the two assembly lines to share related resources, including components made by approximately 30 Taiwan-based auto-parts makers that have set up production facilities there.

DCVC has mapped out a clear division-of-labor scheme, under which DaimlerChrysler will be responsible for producing the 7 to 11-seat Viano/Vito and the 13 to 19-seat Sprinter vans, while CMC will be responsible for sales and parts procurement.

DCVC plans to build 85% of its vans for the booming mainland China market and to export the remaining 15% to Southeast Asian nations.

Integration on Both Sides of the Taiwan Straits

After long period of operating on both sides of the Taiwan Straits, Yulon has begun to find international success. Kenneth Yen, vice chairman of the Yulon Group, says that "no matter how serious the political tensions are between the mainland China and Taiwan governments, Yulon has achieved a secure status in both markets."

According to Yen, the DCVC venture and Yulon's numerous negotiations with different parties in the U.S., Germany, and mainland China demonstrate the success of Yulon's internationalization strategy.

According to those familiar with the project, DCVC received initial approval from the mainland's central government in late 2003, and feasibility research for the project by the Beijing government was finished in October 2004. However, the mainland government delayed its final decision on the plan because DaimlerChrysler "bundled" a proposal to jointly build Mercedes-Benz cars with Beijing Automotive Industry Holding Company together with the DCVC venture.

To smooth the way for the DCVC venture, Yen flew to DaimlerChrysler's headquarters in Germany and the U.S. many times. Su Ching-yang, former CMC president, also called upon DaimlerChrysler's management in Stuttgart of Germany on several occasions, and even visited DaimlerChrysler's production bases in Spain and Argentina to show Yulon's sincerity.

Benefits for Yulon

Yulon will utilize its cooperation with South East Motor Corp. and DCVC to penetrate the huge market in mainland China, an astute move in light of the recent decline in auto sales in Taiwan.

Due to its cooperation ties, Yulon finds itself well positioned for future success. With subsidiaries and affiliates in Taiwan, mainland China, and the Philippines (Yulon has a 75% stake in Nissan Motor Philippines Inc.), the group can now choose which manufacturing facility is best suited for the local production of different car models and brands.

Yulon has now developed complex ties with partners in Japan, the U.S., Europe, and mainland China. The most recent example of Yulon's success in cooperative production is its manufacturing of Nissan cars in Taiwan. CMC also now locally produces Mitsubishi car models, and will introduce its locally made Chrysler Town & Country van in April 2006. The company also plans to make GM models here, and hopes to build Renault cars and Mercedes-Benz commercial trucks here if conditions allow.

Yulon Group's Blueprint for Operations in Taiwan and mainland China
Taiwan		China
Yulon*	CMC**	Yulon	CMC
Yulon Motor , Yulon-Nissan, Yulon GM	CMC, DaimlerChrysler Taiwan	Aeolus, Dongfeng-Yulon	South East, DCVC

*: Yulon's market value is about NT$47.97 billion (US$1.43 billion at US$1:
NT$33.6).

**: CMC's market value is about NT$42.02 billion (US$1.25 bilion).