Foreign automakers pick up speed
(Agencies)
Updated: 2004-03-29 14:50

In the race for China's turbo-charged auto market, foreign automakers have the winning brands, but local rivals are in for the long haul and may have a few tricks up their sleeves.

Unlike foreign mobile phone and electronics makers that had their dreams of big China sales dashed by intellectual property (IP) infringement and rules requiring foreign manufacturers to find local partners, auto industry watchers say foreign carmakers are protected by their brands.

"Chinese consumers still lean towards foreign brands," said Josh Li, managing director of the advertising firm Grey Worldwide in Beijing. "I don't think China will ever develop into a Chinese-only market."

Chinese consumers are more likely to own a Haier TV or a Bird phone than be seen cruising around in a Chery or Geely car, which are perceived to have lower status than their foreign counterparts.

Only the richest 1 per cent of China's 1.3 billion population can afford a car, reinforcing the sense of status that supports established foreign brands, industry watchers say.

General Motors Corp, China's second-biggest player, tested this theory with an experiment. It launched the same Buick sedan under a Chinese name to see how it would go down with local consumers.

"It turned out that nine out of 10 customers opted for the original version, because of the foreign cachet," said GM spokeswoman Daphne Zheng.

Local brands make up less than 20 per cent of China's passenger car market and mainly compete in the low-end segments.

While most foreign companies enjoyed stronger-than-expected sales last year as the car market doubled to about 2 million units, Geely's sales fell about 20 per cent short of its initial target of 100,000 units.

The government is believed to be tinkering with its ambitious targets for local market share after impassioned complaints from foreign players.

Insiders say the latest draft of the evolving auto policy has deleted a reference to having pure Chinese brands control half of the car market by 2010.

Foreign carmakers aren't taking any chances, filing piracy and IP infringement cases in a legal environment some fear favours local firms.

Last year Japan's Toyota Motor Corp lost a suit against Geely for copyright infringement on its logo, while SAIC-Chery's QQ minicar is at the centre of an investigation by GM, which says the model is a copy of its Spark.

Nissan Motor Co may take legal action against another local maker, Great Wall Auto, over alleged design piracy.

Carmakers rely heavily on parts suppliers to provide cutting-edge technology. But IP protection is an even bigger headache for parts makers, which guard product blueprints from their Chinese partners.

"We had major problems with IP infringement," said Jinya Chen, president of Delphi Corp's Chinese branch. "You really have to find the right partner to ensure you're safe."

Some experts say it is only a matter of time before local makers can compete with foreigners in product development and engineering.

"Chinese makers have a disadvantage now but this will change," said Norbert Wittemann, head of Global Automotive Practice at consultancy A.T. Kearney.

"They're also closer to the customer, and have a better understanding of regional differences."

If and when local auto firms catch up, foreign automakers will be left with only their brands, analysts say.

Most are focusing on building brand loyalty through after-market support, which was virtually non-existent five years ago.

For China's home-grown automakers, winning the domestic market is not just about business.

"In 1987, when I was working for GM, I told them that China will build its own cars, and they laughed at me," said Ed Wong, a design director at Sphere One who has worked for several local makers including Beijing Jeep.

"But we will standardize (the process), execute and surpass (the foreigners) with an iconic car."

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