BEIJING - For years,
Shanghai Automotive
Industry Corporation (SAIC), a government-owned
behemoth, has worked side by side with General
Motors Corporation (GM) and Volkswagen AG on
world-class assembly lines to build cars for the
Chinese market.
Now, the giant auto maker
is getting ready to use the technical expertise
and experience it has gained from these
partnerships - which turn out hundreds of
thousands of Buicks and Chevrolets as
well
as VW Santanas and Passats a year - to make its
own high-end sedan.
Shanghai Automotive's
shift from an ally of its foreign partners to a
potentially dangerous rival is a sign of sweeping
changes ahead for auto makers in the fast-growing
China market, which has become an increasingly
important source of sales and profits for US and
European auto companies.
Prodded by
Chinese economic planners, large state-run
companies that have joint ventures with other
foreign manufacturers, from Ford Motor Corporation
of the US to Japan's Suzuki Motor Corporation and
South Korea's Kia Motors Corporation, are also
moving to develop and sell more vehicles under
their own brand names. The push comes amid a
broader questioning of the role that foreign
companies and brands should play in China's
economy.
"This is a watershed in the
development of the auto industry in China," said
Michael Dunne, president of consultancy Automotive
Resources Asia. "The Chinese formed joint ventures
for one purpose: to learn how to do it themselves
one day. That day is here."
Zhu Xiangjun,
a spokeswoman for Shanghai Automotive, said the
company's launch of its own brand will foster a
"healthy" rivalry that will "drive" the joint
ventures to "further improve their
competitiveness". The company is expected to
release more details about its new-car development
plans Monday.
In a prepared statement, GM
said it "understands" Shanghai Automotive's
"desire for further growth" and is confident "SAIC
recognizes that the success of both companies in
the China market is closely linked to the success
of our joint ventures". Volkswagen said:
"Volkswagen and SAIC keep a close and long-lasting
partnership. We understand SAIC's wish to build up
an own Chinese car brand. We offered our support
in the past and still do at present."
The
new car from Shanghai Automotive, China's largest
passenger car maker, will be a modified version of
MG Rover Group Ltd's Rover 75, a luxury, four-door
sedan that will compete head to head with some
cars produced by Shanghai Automotive's joint
ventures with GM and VW. Shanghai Automotive
bought the plans for the cars and the rights to
make them from MG Rover Group before the British
company filed for bankruptcy in April 2005.
Shanghai Automotive says its new car,
which hasn't been named, will start rolling off
the assembly line within the next six months.
Sales in the domestic market will start soon
after. The company also plans to push into its
partners' home turf, with exports to Europe and
the US. It is aiming to start sales in Europe as
early as 2007.
Succeeding with such
ambitious plans won't be easy. "It's risky for
local companies to start at the high end. Their
brands aren't strong enough," said Yale Zhang, an
analyst at CSM Worldwide in Shanghai.
Over
the near term, foreign auto makers have few
alternatives. Under Chinese regulations, to make
cars in China, foreign companies must form joint
ventures in which their Chinese partners own no
less than 50%. The major multinationals have
already teamed up with the biggest and most
promising local firms. So, observers say, they
have little choice but to keep making their cars
and encourage their partners not to compete too
directly with them.
For now, few analysts
expect Shanghai Automotive or China's other state
enterprises to suddenly walk away from their very
substantial, and profitable, investments in joint
ventures with foreign firms. But, they say,
balancing cooperation and competition is likely to
become increasingly difficult.
GM's China
joint ventures have become especially critical to
the company at a time when it is piling up large
losses in North America. For 2005, GM reported
preliminary profit of US$327 million from its
affiliates in China, compared with $417 million
the year before.
Already, sales of
homegrown Chinese cars, many made by small
manufacturers, are starting to take off. Last
year, 26% of passenger cars sold in China were
Chinese brands, more than double the share in
2001, according to Automotive Resources Asia.
Heightened competition is pushing down prices and
squeezing profits.
Now that Shanghai
Automotive and the country's other major vehicle
manufacturers are getting into the game, it is
likely to accelerate the trend. Shanghai
Automotive employs about 50,000 people. Last year,
its manufacturing ventures made more than 600,000
vehicles, dwarfing the output of Chery Automobile
Co and Geely Holding Group, two smaller auto
makers that have garnered attention abroad because
of their export ambitions.
Shanghai
Automotive traces its roots back to factories that
made tractors, buses and shiny, black Phoenix
sedans for party cadres in the years after the
communist revolution. The company stopped making
its own vehicles in the mid-1980s when it signed a
joint-venture deal with Volkswagen. Partnership
agreements followed with dozens of parts makers
and, in 1997, with GM.
Shanghai
Automotive's recent efforts say a lot about
industrywide strategies for gaining access to
know-how and technology to strengthen China's
domestic manufacturers. The company says it has
gleaned "rich experience and resources in every
field" from its work with GM and VW. In addition
to manufacturing ventures, Shanghai Automotive
insisted on a joint research and development
(R&D) operation with GM. Staffed by top GM
engineers and designers and their local
counterparts, the center has been doing
increasingly sophisticated design work for GM cars
sold in China.
Shanghai Automotive is
hiring experienced engineers and managers from
these joint ventures to work on its own car
projects. It is also bringing in veteran
executives from foreign car makers. Wang Xiaoqiu,
general manager of the Shanghai Automotive unit
that will be making the new sedan, for example,
once worked for Shanghai Volkswagen. Its R&D
head, Wang Dazong, is a veteran of GM and parts
supplier Delphi Corporation.
Shanghai
Automotive says it is planning to open a design
center in Europe later this year. And it has
brought in engineers from Korean sport-utility
vehicle maker Ssangyong Motor Co, in which
Shanghai Automotive bought a controlling stake in
2004.
Chinese and foreign auto makers are
already grappling with the implications of the
state enterprises' solo efforts. Xu Liuping, chief
executive of government-controlled Changan
Automobile Group, which has joint ventures with
Ford and Suzuki, said his company plans to roll
out four of its own new passenger car models
within the next year. "Of course, there will be a
certain degree of competition," Xu said. "But my
view is that different brands and products will
have different target customers."
