Auto making brands to increase local content
By Gong Zhengzheng (China Daily)
Updated: 2004-06-01 08:38

Sino-French joint venture Dongfeng Peugeot Citroen plans to let the two French brands share components and increase the local content of its cars as a cost-cutting effort to cope with the increasingly intense price wars in China's fast-growing car market.

Dongfeng Peugeot Citroen says local content of any new models to be launched by Sino-French auto venture will start at 45 per cent, rising to 60 per cent in one or two years. [newsphoto]

Dongfeng Peugeot Citroen President Liu Weidong said that 60 to 65 per cent of the Citroen and Peugeot cars produced on the same platforms of the joint venture will be same.

"This is in line with PSA Peugeot Citroen's practice around the world," Liu said.

The joint venture, between China's Dongfeng Motor Corp and PSA Peugeot Citroen, now has the N platform producing Citroen's Fukang, Elysee, Xsara and Picasso, and the No 2 platform, which will start to produce the Peugeot 307 in April.

The venture, based in Wuhan, the capital of Central China's Hubei Province, will introduce another platform to produce small-sized cars next year.

Liu said that local content of any new models to be launched by Dongfeng Peugeot Citroen will start at 45 per cent, rising to 60 per cent in one or two years.

"We are voluntary increasing our local content in order to cut costs and evade risks from foreign currency fluctuations after the central government cancelled the requirements on this matter after China's entry to the World Trade Organization (WTO)," Liu said.

China required that cars produced by Sino-foreign joint ventures should start with a local content rate of at least 40 per cent, growing to 60 per cent in a year and increasing to 80 per cent in two years before joining WTO at the end of 2001.

"If we use domestically made components, the cost will decline by 40 to 50 per cent compared with those made in Europe because of the strong euro," Liu said.

"We must continue to take measures, such as boosting local content, to cut costs because Dongfeng Peugeot Citroen faces increasing pressures from frequent price cuts on the domestic car market, as well as other car manufacturers."

Two weeks ago, General Motors' joint venture in Shanghai cut the prices of its Buick Regal and Excelle by 20,000-40,000 yuan (US$2,410-4,820).

"Price will remain the biggest factor in competition on the domestic car market this year, although the brand and after-sales services are becoming more important," Liu said.

Prices on the domestic car market are forecast to decline by nearly 10 per cent this year, with almost all manufacturers cutting prices.

Other foreign automakers are also increasing the local content of their cars made in China.

Germany's Volkswagen, the biggest carmaker in China, plans to lift its local content rate to 80 per cent within the next two to three years from the current 60 per cent in order to ease the burden of the strong euro.

Volkswagen runs two joint ventures in Shanghai and Northeast China's Jilin Province.

But concerns remain about the quality of cars made in China with a mounting local content rate.

"High local content rate equalled low quality in the past, and now the problem still could not be avoided, especially for high-end cars, such as BMW and Mercedes-Benz," said Zhang Xin, an auto analyst at Guotai & Jun'an Securities.

Liu stressed that Dongfeng Peugeot Citroen will do its best to ensure the quality of its cars, despite the increasing local content rate.

"The components sector in China has improved significantly with international competitiveness," he added.

The joint venture plans to sell 150,000 cars, including 15,000 units of the newly launched Peugeot 307, this year, up from 100,000 units last year.

It also aims to increase annual sales to 300,000 cars before 2007.

The venture plans to introduce at least one new model every year from 2004 to 2009.

A Peugeot 206 will be produced by the joint venture next year.

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