The action is revving up in the world’s hottest car market.
Honda Motor Co. said Wednesday that it planned to create a new brand by 2010 with its Chinese partner. It would be the first time that a foreign carmaker has launched an original brand for sale in China.
Separately, Volkswagen and its auto venture in Shanghai said they would jointly develop a new car targeting the North American and Chinese market. The investment follows a recent deal between DaimlerChrysler’s Chrysler Group and China’s Chery Automobile Co. to build small cars in China to be sold worldwide.
Together, the moves underscore China’s growing importance for car sales and production. Last year China surpassed Japan to become the second-largest auto sales market, and at a current annual growth rate of 25%, it could overtake the U.S. within a few years. Amid anemic sales growth in mature markets such as the U.S., China represents a huge opportunity for the world’s leading auto manufacturers.
In Honda’s announcement, Japan’s second-largest automaker said its joint venture in China would spend about $246 million to build a research and development center in the southern city of Guangzhou, where the joint venture operates two manufacturing plants making Honda vehicles for China. Honda also has a separate facility there that makes cars for export to Europe.
Building the R&D; center will probably better position Honda with the central government. “It will be much easier for Honda’s future new programs to be approved,” said Jia Xinguang, chief analyst at China Auto Industry Consulting.
But it also risks strengthening local competitors. For the Chinese market, foreign carmakers have generally produced cars developed outside of China, in good part to protect their designs and engineering. Honda, General Motors Corp. and others have filed lawsuits, to little avail, against Chinese carmakers for allegedly pirating their models.
The announcements by Honda and Volkswagen are a big boost for the export-ambitious Chinese auto industry and the government, which is pushing to speed up technology transfer from foreign companies and boost the competitiveness of domestic enterprises in crucial sectors such as automobiles, electronics and aviation. “This is absolutely part of China’s up-the-value-chain focus in manufacturing,” said Donald Straszheim, a China specialist at Roth Capital Partners, a Newport Beach-based investment bank.
In recent months, China has attracted major commitments from companies such as Intel Corp., Airbus and Novartis to build sophisticated manufacturing or research operations. Chinese statistics suggest that research and development is accounting for a growing share of foreign direct investment, although many foreign businesses remain concerned about protection of intellectual property rights in China.
Beijing requires foreign car companies to establish joint ventures if they want to produce cars in China. In recent months, Chinese officials have urged domestic carmakers to build up their brands and improve quality in the face of powerful foreign competition.
Masaya Nagai, a Honda spokesman in Beijing, said his company’s move to create a local brand was a natural progression that the carmaker has followed in other countries, including the U.S., where Honda has a design center with the capability of creating locally tailored models. But he added, “Yes, the timetable is faster” in China.
Nagai said the new line of cars would initially be derived from existing Honda vehicles. Though there were reports that these cars would be sold for less than $10,000, he said the pricing of the new brand hadn’t been determined. Honda launched production in China in 1999. For the first half of this year, its sales in China totaled 187,000 units, up 31% from the same period a year earlier.
Through the first five months of 2007, Honda ranked No. 5 in sales volume in China, after VW, General Motors, Chery and Toyota.