With Domestic Sales Slow, Chinese Carmakers Look Abroad for Growth

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Anyone still clinging to the traditional image of Chinese automakers producing cars that no one outside of the world’s largest auto market would want to buy may be surprised to hear the global reach that many of the larger Chinese automakers have already achieved.

Not only are exports increasing rapidly, according to the China Daily, but carmakers are establishing assembly operations in overseas markets far beyond what may be considered their traditional Southeast Asian area of influence. Indeed, faced with a slowing domestic economy and the end of government-sponsored incentives in 2009/10, Chinese car companies are increasingly spending their investment dollars outside the country.

China’s biggest car exporter, Chery Automobile Co., will soon start assembling vehicles in Vietnam, the paper said, marking its latest move to tap overseas markets as growth in the low-priced car segment stalls in China. The new plant in northern Vietnam would be the 17th overseas production site for Chery, even though the company exported 17,412 vehicles last month, up 39 percent from a year earlier.

Its overseas shipments in May are likely to hit an all-time record of 20,000 units. Chery also plans to invest about half a billion dollars in Turkey over five years on a new engine factory and assembly plant, as China’s domestic carmakers have seen their home market share fall by 3.2% to 42.3% overall, even as domestic car makers sales in the first four months of this year fell 5.2 percent to 2.1 million.

Chery is not alone. Great Wall Motors has started production in Bulgaria and aims to build more than 20 overseas assembly plants by 2015, when its foreign sales are projected to reach 300,000 vehicles, about a fourth of its total. Last year it sold about 480,000 vehicles, 83,000 of them delivered abroad. Geely Automobile Co. also plans to increase its number of assembly plants overseas with a new production plant under construction in Egypt to open later this year.

The casual observer may dismiss such expansion as only being of relevance in the emerging market concerned, but that would miss several important issues.

Firstly, a Chinese car sold in Egypt, Bulgaria or Vietnam is a sale not going to Ford, Toyota or VW. Secondly, the more critical mass that greater total sales numbers bring to Chinese carmakers, the more they will be able to compete with the market leaders in the future. (China’s car industry has traditionally been fragmented and unable to achieve the same economies of scale as major Japanese, European or American car giants.) Lastly, plants in places like Bulgaria and Turkey will enable Chinese car producers to get “under the wire” into European carmakers’ backyards, many of these countries are on the brink of EU membership or enjoy duty free benefits.

A trickle may not be in imminent danger of turning into a flood, but as quality gradually improves, sales into Western markets will rise. Those with most to fear are not Mercedes, BMW, Jaguar Land Rover or Audi, but Fiat, Peugeot, Citroen, etc., and maybe even VW, who compete at the small car (read: cheap car) end of the market.

Ferrari may be racking up record sales into China — 777 sold last year, making Greater China the Italian mark’s second largest market, according to the Telegraph — but at the volume end, a quiet revolution is heading in the opposite direction.

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