Analysis: Issues with Chinese vehicles in overseas markets

Gasgoo.com (Shanghai) - One of the most notable recent events in the Chinese automotive industry has been the exporting of Sino-foreign joint venture models to other markets. The most notable examples include Brilliance BMW's exporting of the 5 Series Li to the Middle East and Beijing Benz beginning sales of the E-Class to South America. Although the news represents a new phase for the industry in China, a lot of controversy remains as to how popular such business ventures will become. To this end, Gasgoo.com (Chinese) conducted a survey at the end of last year, collecting opinions from 1,765 industry analysts and experts.

The first question of the survey went straight to the heart of the matter, asking participants whether or not they believed that exports of Chinese-made foreign JV models will become mainstream in the future. A majority of respondents, 62 percent, said that it would be hard for such sales to become mainstream in the future, while 31 percent answered that it was a very real possibility. 7 percent remain undecided.

Originally when joint ventures begun forming in China in the 1980s, there was a lot of hope that their products would eventually be exported to other countries. However, the rapid growth of the Chinese economy forced manufacturers to concentrate all of their efforts on the local market. There have been several reports in the past that the Chinese teams in several JVs found their proposals to export models squandered by their foreign partners. Only a select few cases finally came to fruition, including Shanghai General Motors' sales of Buick GL commercial vans to the Philippines in 2002, Shanghai Volkswagen's sales of 600 Polo sedans to Australia in 2003, SAIC-GM-Wuling's export of 12 commercial vans to Afghanistan, and Shanghai GM's sales of over 1,400 Chevrolet Sails to Chile. Ultimately, automobile exports have become the exclusive domain of domestic manufacturers such as Chery and Great Wall, with joint ventures unable or unwilling to catch up.

When asked why joint ventures have fallen behind their rivals in the export market, survey participants had a variety of theories. First, exports of JV models mainly benefit Chinese parties, as most foreign companies already sell their products in overseas markets via other methods. This may lead to internal competition, which is something foreign owners of JVs would not stand for. Furthermore, foreign parties are still primarily concerned with expanding their Chinese market share, with any overseas sales far from a priority. 17 percent of respondents believe that these market considerations are the major factors behind lack of interest in JV exports.

Meanwhile, there is some doubt as to whether or not manufacturing vehicles in China offers significant advantages, with 24 percent of respondents answering that the actual benefits were questionable. That said, the Japanese earthquake and ensuing floods in Thailand last year have forced many manufacturers, especially Japanese ones, to consider establishing production sites in countries such as China to safeguard against future disasters. Those manufacturers will be weighing in environment, production costs, logistics infrastructure and other factors when making such a decision.

Fluctuations in currency exchange rates have been another important factor when considering the possibility of automobile exports. This has been especially noticeable among Japanese manufacturers such as Toyota, who have seen their profits shrinking last year due to the ever-increasing value of the yen. 11 percent of survey respondents believe that the future value of the Chinese yuan will be a crucial factor in seeing if JVs will begin large-scale exports.

12 percent of respondents believe that the questionable reputation associated with Chinese-made products played an important role behind JV's relative disinterest in pursuing exports. Meanwhile, six percent believe that official government support, specifically in refusing to lower export taxes, is still lacking.

For the most part, Chinese automobile exports have been limited to the Middle East, Latin America, Africa and other emerging markets, with little to no presence in Western countries. In terms of quality, safety, environmental friendliness and brand recognition, Chinese products are still unable to compete with Western equivalents, which is why future exports will still primarily be targeted at emerging markets.

Although both Brilliance BMW and Beijing Benz have been crucial in bringing attention to the topic of Chinese exports, 50 percent of survey respondents believe that the best bet for joint venture exports still lies with entry-level automobiles. A notable example is the recent decision of SAIC-GM-Wuling to export Wuling brand vehicles to India, where they can make use of their competitive advantage in production costs to compete with Maruti Suzuki, while not directly threatening sales of GM's other vehicles. This sort of situation would both sufficiently benefit the Chinese and foreign sides of the JV. Cooperation with luxury vehicles, by comparison, would be very limited, with the relative inexperience of Chinese manufacturers and the fact that foreign companies already have other ways of selling those sorts of vehicles overseas. Only 16 percent of respondents believe that JVs will focus on luxury vehicle exports in the future.

While it is undeniable that the market for Chinese automobile exports has been growing rapidly over the past few years, joint ventures are still far behind their domestic rivals. The Chinese market itself still possesses a lot of potential for expansion, so it may still be several years before JVs begin serious expansion overseas.