Hybrid challenge for auto JV in China(2)

Cool Chery

Though it is one the Chinese brands that stands to lose out to hybrids, Chery remains unfazed.

Zheng Zhaorui, general manager of Chery Sales and Service Company, says there are already 300 passenger car models in the Chinese auto market. "Having some more new variants is not going to harm us, but would rather prompt us also to join in."

Yuan Zhongrong, deputy general manager of Guangzhou Automobile Group Co, says he does not pin too much hope on the hybrid brands, as they often use obsolete production platforms. "I would instead prefer to focus on development of indigenous Chinese brands."

But he admits that cooperation is the long-term trend as the biggest advantage that Chinese brands had - low cost - has almost disappeared.

"Multinational companies can now control costs as effectively as the Chinese brands did, so the Chinese brands have no choice but to set up more joint ventures."

In China, a new auto brand means another chance to make profit - at least in the short term, and most companies won't let that go.

Driven by the belief hybrid brands are the next cash cow, companies have launched a slew of models and more are in the pipeline.

Ma Jun, vice-president of Chang'an Automobile Co, estimates that every Chinese model has an average life span of three to four years, and can expect total sales of around 300,000 units. For foreign brands, the number could go up to 1 million.

For models that are already in the market, Ma says it is difficult to say whether they are successful or not. "They eventually need to be tested by the market and consumers."

Joe Hinrichs, group vice-president and president of Asia-Pacific and Africa for Ford Motor Co, says it is curious that there is brand consolidation in the US, while in China there is brand proliferation.

But that doesn't mean Ford has stopped introducing new models. Earlier this year, the company launched the New Focus model, while the old generation of Focus, or the classic Focus, is still being manufactured.

"The older generation is sustainable only when it meets the new standards and emission requirements," Hinrichs says. "The classic Focus is only five years old, and it is still very competitive in terms of fuel economy, emission and safety standards."

Chang'an Ford hasn't officially announced any plans for the hybrid segment.

Although SAIC-Volkswagen didn't respond directly to queries on whether its old production lines are being used to make hybrid variants, the company indicated that it was trying to give the market more mature products "no matter if it is a mature product line, or an obsolete one. Decisions are influenced by the market, facilities, and the maturity level of the product lines," the company says.

According to industry experts, the new joint-venture brand developed by SAIC-Volkswagen will most likely be an electric care patterned on the latter's Lavida model.

The company says: "After billions of investment in research and development, SAIC-Volkswagen is now capable of developing a new brand on its own."

Most of the hybrid brands are mainly designed for the Chinese market and hence have limited export potential.

"If we export from China, there will be logistics and tax costs to bear in mind. Also, our products will be competing directly with the mature products in these countries," Hinrichs says.

Guangqi Honda is among the few joint ventures that have stepped up hybrid vehicle manufacture and also tasted success with its joint-venture brand Everus.

Since the Everus S1 model entered the market in 2011, it has achieved decent sales volume in markets like Guangdong, Henan, Anhui, and Jiangsu, the company says. The Everus S1 2012 was launched in April and monthly sales have climbed to 3,000 units.

The company says the model has become a weapon to fight for third-tier cities. "As the first self-owned joint-venture brand, Everus demonstrates the R&D strength of Guangqi Honda."

Since it is jointly developed by Chinese and foreign partners, the intellectual property rights for the Everus belong to Guangqi Honda.

Ren Yong, vice-president of Dongfeng Motor Corporation, told China Economic Times in a recent interview that a new joint-venture brand is essential for Dongfeng Nissan as it targets the low-end segment of the market.

The company's high-end model is Infiniti while in the mid-level segment it has the Dongfeng Nissan. For the low-end market, the company will come out with the Venucia, a brand developed by the Chinese joint venture Dongfeng Nissan.

By 2015, Venucia plans have an annual production capacity of 300,000 units, Ren says. The brand will use the distribution networks of Dongfeng Nissan for further growth.

"Venucia can use the services of more than 600 Nissan dealer stores, and Nissan can also use the Venucia networks after dealers are certificated," the China Economic Times report said.