Automakers look to drive sales overseas

Chinese carmakers will have to rethink strategy, improve products in order to compete globally

More than 1 million new cars were sold in Indonesia last year. That fact alone makes the Southeast Asia giant a very desirable market for automakers.

Indonesia accounts for about 40 percent of the population of the Association of Southeast Asian Nations and its economy has been growing fast, at more than 4 percent a year for more than a decade. It is a natural export market for Chinese auto manufacturers looking to up their market share.

And it gets better.

Earlier this year, the Indonesian government launched new tax incentives for low-cost green cars, which give automakers another reason to get into the action. The government has cut the luxury tax by 25 percent for cars that have a fuel efficiency of 20 kilometers per liter, 50 percent for 28 km per liter and 100 percent for cars that can go even further.

But there is a catch. These vehicles must be assembled domestically and as much as 84 percent of the components must be made locally. Virtually no Chinese automakers are in a position to take advantage of those tax breaks. For the time being, Japanese automakers will continue to dominate the market.

Not only in Indonesia but in most foreign markets, Chinese automakers are having a hard time competing with more advanced multinational manufacturers from Japan, South Korea, Europe and North America.

Chinese companies want to go abroad, but their offerings are still of lower quality and the after-sales service typically weak because they generally do not have the networks in place to provide quality services, said John Zeng, managing director at LMC Automotive Consulting in Shanghai.

Aside from a couple of standouts such as Great Wall Motors Co Ltd, Chery Automobile Co Ltd and possibly Zhejiang Geely Holding Group Co Ltd, most Chinese automakers simply cannot compete in this area.

"(Chinese automakers) are quite eager to go overseas. It is a great marketing tool for them to go overseas. It is good advertising for them,"said Zeng. The problem is that "most of them are treating overseas markets as a trading business. They mainly rely on price as a weapon".

On the surface, it makes sense for Chinese automobile manufacturers to look to new markets.

Competition in China is intensifying and overcapacity among domestic makers is still a significant issue, according to a new report by international consultancy AlixPartners. Most Chinese manufacturers operate at 65 percent capacity, compared with the 80 percent considered to be the minimum for stable profits.

At the same time, Chinese automakers have struggled to gain market share, particularly in the key sedan segment. The only standout is Great Wall, which has a leading position in the China sport utility vehicle market, according to the report. In the luxury car segment, Bayerische Motoren Werke AG (BMW) and Audi AG lead the way, followed by Mercedes-Benz.

Dongfeng Motor Corp, China's second largest auto group, plans to boost sales abroad from 64,000 in 2011 to about 300,000 by 2016.

In October 2012, the Chongqing-based Lifan Industry Group announced plans to invest in its overseas operations to double exports to 120,000 by 2015. If the company meets that target, exports will account for about 40 percent of total sales and jump from around 53,000.

Zhejiang Geely Group, which has owned Volvo Car Corp since 2010, is looking to expand abroad rapidly. The company's exports in 2012 reached 100,000 vehicles, about 20 percent more than originally expected, mostly in Russia, Ukraine, Iraq and Saudi Arabia. By the end of this year, the company aims to export as many as 150,000 units.

"We will do everything in our power to explore overseas markets,"said Beijing Automotive Group Chairman Xu Heyi in a statement. By 2020, the company wants to earn $408 million in profits abroad.

In June, Beijing Auto announced an international strategy that would see the company's annual sales outside China jump to 400,000 vehicles by 2020. More than two-thirds of these cars would also be manufactured abroad.

SAIC Motor Corp acquired MG Motor in 2005. The company has plans to launch a joint venture in Thailand and to make its MG6 sports car and its Maxus commercial vehicles there as well. SAIC is China's largest automaker by sales and revenue.

Chinese passenger vehicle exports peaked in 2008 at 314,000 before halving the following year. They have been climbing steadily since. In 2012, exports jumped to 616,738. The vast majority of these vehicles are going to emerging markets in the Middle East and Africa.