Heavy traffic builds up in China

Building Brics: Foreign car makers are focusing their efforts with vehicles manufactured exclusively for the Chinese market, often revamped versions of familiar models. But the viability of this strategy is in question.

An Honda Accord and an Everus S1 are pictured during the 9th China (Guangzhou) International Automobile Exhibition. Imaginechina via AP Images

A car enthusiast would immediately identify the metallic grey saloon sitting on a dealer's forecourt in southern Beijing: it is the old-model Honda City.

Yet Honda's easily recognisable "H" badge is nowhere in sight. Instead, an all-new logo hangs from the grille, one that has been created thanks to a new Chinese government strategy to help struggling domestic car makers.

This is the S1, launched last year as the first model from Everus,a new China-only brand set up by Guangqi Honda, a long-standing joint venture in China between Honda and Guangzhou Automobile Industry Group that last year sold 362,000 vehicles.

It is not only Guangqi Honda that has just launched a brand solely for China.

Dongfeng Honda, the Japanese car maker's other Chinese joint venture, has unveiled its Ciimo nameplate, which is offering a previous generation Honda Civic for prices starting at 111,800 yuan (Dh64,620), nearly 20 per cent less than the car sold for as a Honda.

Similarly, last year General Motors launched its Baojun brand through a joint venture, and its 630 saloon, a largely redesigned car, is proving popular with more than 6,000 sales in April.

Nissan is getting in on the act, unveiling its D50 model under the Venucia brand, started with Dongfeng. The D50 is a restyled old-model Nissan Tiida and prices start at a keen 67,800 yuan.

While foreign car makers manufacturing in China have long had to set up joint ventures with Chinese companies, these China-only brands represent a new trend, one the authorities are encouraging.

"Many of our competitors that have not launched a dedicated brand have had the brakes put on their plans to develop manufacturing," Maxime Picat, the head of Peugeot-Citroen's joint venture in China, which is also setting up a China-only brand, told AFP this year.

The Chinese authorities hope these China-only brands will speed the transfer of technology from foreign car firms to their Chinese partners. The new brand, rather than the foreign partner, now owns the technology.

Chinese partners, as well as being part of one or more joint ventures, typically also produce vehicles under their own brands and what they gain from overseas collaborators they can incorporate into their own research and development programmes.

Until now, says Klaus Paur, the global head of automotive for the research company Ipsos, there has been little technology transfer through the foreign-branded joint ventures, much to the concern of the authorities.

The joint ventures have been "extremely successful in the market" but the technology has "very much stayed in the hands of the international brands".

"The Chinese partner is providing the distribution network and the production facilities but the [intellectual] property rights remain with the international brands," says Mr Paur.

This is no accident, since there are risks for a foreign car maker in giving a Chinese partner technology.

Following a well-worn path in other industries, partners can use their new-found expertise to produce upgraded products of their own and ultimately compete with their foreign collaborator both at home and abroad.

Chinese car makers are struggling and could use some assistance.

In the first three months of this year, their market share was 3.2 percentage points down at 42.9 per cent.

Some analysts doubt the new brands will achieve much technology transfer as their vehicles are based on old models and use what could be considered outdated technology.

"If you look at Honda … this way of development of a joint venture brand is not helpful," says John Zeng, the director of Asia Pacific vehicle forecasting for LMC Automotive China, adding the company has "not invested a lot" in its new Chinese brands.

"[Dongfeng, Honda's partner in Everus] cannot learn much from the technology side.

"In this way, I don't think they will have a big impact on the market. I don't see the government will support this kind of product strategy in the long term."

He sees General Motors' Baojun brand, which is developing original models, as offering more promise.

As well as potentially benefiting Chinese car makers, these new China-only brands could also pose a threat.

Since they are aiming at the lower end of the market, where Chinese car companies also focus their efforts, the likes of Everus and Baojun could take sales from local producers.

Scott Laprise, a car industry analyst with CLSA China, believes the international car makers view their new ventures as a way of taking on Chinese brands at the lower end of the market.

"This is just a blocking strategy in my view," he says.

"I don't think there's a strategic view that these companies are going to make millions." Mr Paur concurs, saying the new brands could be "rather an own goal", not a help to Chinese car makers.

The new brands are emerging even though concerns have been voiced that, with more than 100 car makers, China already has too many brands, even for the world's largest car market, with 14.5 million passenger car sales last year.

With sales dipping 1.3 per cent in the first quarter of this year following the removal of government incentives and amid reports of 60 days' stock piling up at dealers, it hardly seems the time to add more brands and, ultimately, new dealer networks.

"You have a lot of car makers, a lot of brands, more brands than anywhere in the world.

"With these joint venture brands, you increase the number.

"It's against what the market needs. The market needs a clean-up," says Mr Paur.

And some question whether new brands producing barely facelifted old models will succeed. Given the preference Chinese car buyers have for foreign vehicles, a previous generation Honda or Nissan may, however, appeal more than the latest model from a Chinese car company.

If the new brands, as expected, expand their ranges and launch more independently developed models, they could become more competitive still.

"Baojun has been successful but in the long term it will depend on how their product development goes on," says Mr Paur.

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