China Motor Hones Image With DaimlerChrysler Tie-Up in Mainland China

Dec 23, 2003 Ι Industry In-Focus Ι Auto Parts and Accessories Ι By Quincy, CENS
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China Motor Corp., the Taiwan partner of Mitsubishi Motors Corp. of Japan, recently announced that a proposed joint venture among DaimlerChrysler AG, Fujian Motor Industry Group Co. (FJMG) from mainland China, and itself to build Mercedes-Benz vans in mainland China has been approved by the mainland's State Development and Reform Commission.

The three parties plan to produce the Mercedes-Benz Sprinter and Vito/Viano models at a new production plant with a capacity of 40,000 vehicles per year in Fuzhou, Fujian Province. The total investment in this project will be about 200 million euros.

China Motor president Su Ching-yang made the announcement at the recent demonstration of the company's redesigned Freeca commercial-vehicle model in Taiwan.

According to Su, the government approval is a major milestone in the establishment of the joint venture, which plans to begin plant construction in mid-2004 and start production by the end of 2005. In addition, it is also the first international auto-production venture to be approved by the mainland's central government since the leadership reshuffle there last March.

The three parties will contribute their expertise and capabilities to successfully tap the mainland market as well as select Asian countries.

For the commercial-van venture, Su says, DaimlerChrysler and China Motor will first set up DaimlerChrysler Venture Hong Kong (DCVHK), in which the two parties respectively will hold a 67% and 33% stake. DCVHK and FJMG, a provincial government-owned-run automobile- production conglomerate in mainland China, willould set up the commercial- van venture plant in Fujian Province, mainland China with the two sides holding a 49% and 51% stake, respectively. China Motor therefore will have a 16.17% stake in the Mercedes-Benz van venture in mainland China, Su says.

Key Partner

Su claims that China Motor will be a "key minority" partner in the Fuzhou venture. The president explains that DaimlerChrysler was impressed with China Motor's achievements in Taiwan in the past 30 years and the company's superb performance in leading its mainland China-based subsidiary, the South East Motor Corp., to such a success. South East is a 50-50 auto- production venture founded by China Motor and FJMG in 1995. Currently, South East has become a major commercial- van and passenger- sedan maker in the mainland, supplying several hot-selling models redesigned by China Motor from platforms developed by Mitsubishi.

China Motor president Su Ching-yang stands in front of his company`s redesigned Freeca recreational/commercial vehicle.

Su statespoints out that China Motor willwould play a vital role in the Mercedes-Benz van venture. His company will be responsible for much of the planning work, including production- plant design and construction etc., as well as future parts procurement, auto- production management, and marketing/sales affairs.

HeSu adds that the new venture is the resultan indicator of the increasingly close cooperation ties between China Motor and DaimlerChrysler. The two parties are expected to extend their ties into other Mercedes-Benz products or markets in the future, he says, .

Su notes andthat his company has recommended many Taiwan-based auto- parts suppliers in mainland China to DaimlerChrysler for the development of a reliable supply chain forsystem with the new venture.

In the future, Su claims, South East may has not excluded the possibility of shareing its repair and maintenance networks in mainland China with the new venture company, according to Su, although the two companies' sales channels will be totally independent.

Since the vehicles to be made by the Fuzhou venture will sell for over 200,000 rRenminbi each (US$24,000 at US$1=RMB8.2), putting them well into the high-end market, they will not directly compete with South East's mass- market models, Su says.

Image Boost

In addition to filling China Motor's gap in the high-end market, the Fuzhou venture is likely to further improve the the international image for the Taiwan automaker's international reputation for manufacturing quality and capability, say industry insiders.

The sources say that China Motor's success in helping South East rapidly become a major player in the competitive mainland automobile market attracted the attention of DaimlerChrysler and set the stage for closer cooperation. DaimlerChrysler CEO Jürgen E. Schrempp even visited South East and over 30 Taiwan-based parts suppliers in Fujian.

DaimlerChrysler holds a majority share in Mitsubishi, which is a long-term technical partner ofwith China Motor. China Motor is an affiliate of the Yulon Group, the largest automobile- production conglomerate in Taiwan. Yulon also has close cooperation ties with Nissan Motor of Japan in auto- production and -marketing businesses in Taiwan, mainland China, and the Philippines through the group's flagship company, Yulon Motor Co. Yulon Motor currently has a 40% stake in mainland China's Aeolus Motor Corp., whose majority partner is Dongfeng Automobile Group.

DaimlerChrysler is eager to utilize Yulon's well-established sales/marketing networks in mainland China to expedite its entry to the market there and minimize its risks. DaimlerChrysler was also attracted by the positive image and extensive political and business ties of the Taiwan group in mainland China.

The Vito commercial-van model is to be produced by DaimlerChrysler-FJMG-China Motor venture in mainland China.

A local industry observer says that China Motor and its mainland affiliate subsidiary South East are expected to develop a reputation for world-class manufacturing capability by participating in the project with Mercedes-Benz. Image perceptions, they note, can play a vital role in today's auto market, where most products have similar functions and designs.

"Brand image is quite important to South East in China," China Motor's Su admits. Su once visited South East's downstream distributors in northern China and found some consumers were hesitant to buy commercial vans made by South East due to the company's weak brand image compared to the big international auto brands. Su says that South East's distributors have to double their efforts to persuade new-car buyers to pick their SEM-branded models.

The exposure generated by the Fuzhou venture with DaimlerChrysler, Su says, will give a significant boost to the quality and brand image of autos made by China Motor and South East.

Profits Up

With business strong in Taiwan and mainland China, China Motor is expected to set a record high pretax profit this year of about NT$8 billion (US$2354.6 million at US$1:NT$34.1), and earnings per share (EPS) of about NT$6 (US$0.18). The Taiwan automaker says that earnings from its business with South East areis expected to reach about NT$1.4 billion (US$41.06 million) this year, showing that the mainland affiliatesubsidiary has gradually emerged asbecome a major profit-generator for the companyto its parent in Taiwan.

China Motor registered pretax profits of NT$7.47 billion (US$219 million) in the first 11 months this year, up about 30% from the same period of last year. The company posted a consolidatedn accumulated EPS of NT$5.6 (US$0.16) during the period, the highest among all automakers in Taiwan.

China Motor's profits from its stake in South East have been rising in recent years along with the soaring business of the mainland companypartner. In the first 10 months this year, South East's pretax earnings reached RMB600 million, and the figure is expected to break RMB700 million by year-end. South East expects to ship about 85,000 commercial vans and passenger cars this year, which means that it will also be expanding its procurement of parts from China Motor in Taiwan.

Monthly sales of South East's recently introduced passenger sedan, the Lioncel, have been increaseding from about 2,000 units in the first few months to over 5,700 units in November.

South East's second-stage auto plant began production in October with an expanded maximum annual production volume of about 160,000 units. The mainland subsidiary is expected to turn out about 120,000 automobiles next year, outstripping China Motor's output in Taiwan for the first time.

China Motor recently also announced that in 2004 it would aim to sell 80,000 automobiles in Taiwan, generate revenue of NT$52.5 billion (US$1.54 billion), and have pretax earnings of about NT$6 billion (US$1765.95 million), or an EPS of NT$4.35 (US$0.13).
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