Dongfeng Yulon Venture to Realize Yulon's Dream
2011/02/23 | By Quincy Liang
Yen added that Yulon plans to enter into several more projects in cooperation with its Chinese partner, Dongfeng, which is the third-largest auto-making conglomerate in China. The new projects are to be announced in a few months.
Yen pointed out said that he and Dongfeng chairman Xu Ping have agreed that Dongfeng Yulon will pursue a competitive strategy of product differentiation rather than price-cutting.
Yen said that before Yulon introduced its first own-brand LUXGEN model, the LUXGEN7 MPV (multi-purpose van), only few people thought that it was a good idea or that it would have market appeal. However, he claimed, both the LUXGEN7 MPV and the LUXGEN7 SUV (sport utility vehicle) have immediately become the best-selling models of their class in Taiwan.
However, Yen admitted, the real battlefield for Yulon's LUXGEN models is China and the rest of the world—not Taiwan, an island with a very limited auto market. Dongfeng Yulon's first model will be an SUV, followed by an MPV, compact sedan, and crossover.
According to Yulon Group president Chen Kuo-rong, Dongfeng Yulon will also produce Dongfeng-branded commercial vehicles with intelligent functions, some parts of which will be developed and provided by Yulon.
Dongfeng Yulon's president Wu Hsin-fa (former president of the Yulon Nissan Motor Co. in Taiwan) said that his company plans to introduce its first product, the LUXGEN7 SUV, in the third quarter of 2011 in China. It will carry a price tag between 200,000 and 270,000 RMB. Some 15,000 to 16,000 LUXGEN7 SUVs, or even 20,000, are expected to be sold in China in the first year.
Dongfeng Yulon is also scheduled to introduce the LUXGEN7 MPV and CEO (a top-end version of the MPV) in late 2011, a sedan model in 2013, and three or four other models over next five years in China.
Dongfeng Yulon
With initial capitalization of 1.55 billion renminbi (RMB, or Chinese yuan), Dongfeng Yulon is perhaps the Yulon Group's most important move in its next stage of development.
More than 20 years ago the Yulon Motor Co., the group flagship and the local assembler of Nissan car models for more than 30 years, poured a huge amount of resources into the development of 100% homegrown, own-brand car products. The project flopped due to strong objections from Nissan and weak market response from local consumers who lacked confidence in Taiwan-designed automobiles.
Yulon's LUXGEN project did not proceed smoothly in China at first, because the government there wanted to consolidate its over-heated automobile industry by cutting the number of automakers and stopping the issuance of production permits to newcomers.
Yulon's application to set up a new automobile plant in China faced many obstacles, but the Taiwanese group did not give up; instead, it turned to its long-term partner, the Dongfeng Group. After intensive talks with Dongfeng, the two automakers decided to form a new joint venture and modify one of Dongfeng's existing facilities to produce both commercial and passenger vehicles.
The Dongfeng Yulon auto plant will be located in the Linjiang Industrial Zone at Xiaoshan, Hangzhou, in Zhejiang Province. Its first-phase production line, with an annual capacity of 120,000 autos, is already in place and was to be inaugurated by the end of 2010. The capacity of the plant will be gradually increase to 240,000 units, approaching Taiwan's total annual auto sales volume of 280,000 autos.
Parts Suppliers Too
A group of 12 Taiwanese auto-parts makers have decided to set up production in China to directly supply Dongfeng Yulon. According to Yulon, the 12 include the GSK Group, Yueki Industrial Co., Uni-Calsonic Corp., and Y-Teks Co. Their total initial total investment will amount to US$50 million, and they expect to kick off mass production in mid-2011.
In the next stage, Yulon said, some body-parts and vehicle-frame suppliers will set up facilities in Hangzhou, in Zhejiang Province.
Yulon managers report that the group has invested about US$50 million to set up its own parts manufacturing facilities in Hangzhou, but that it still needs support from other suppliers. Yulon plans to provide 3% to 5% of the investment in each of the 12 auto-parts suppliers.
The Tong Yang Industrial Co., a major OE (original equipment) body-parts supplier in Taiwan, said that it has won orders from Yulon for LUXGEN parts, which will initially be shipped from Taiwan to China. The Ta Yih Industrial Co., the largest OE auto-lamp maker in Taiwan, has also received orders from Yulon.
Dongfeng Yulon has signed up its first 60 distributors in China in short order, according to Yulon, which is confident of LUXGEN sales in China following its successful introduction in Taiwan.
Higher-end Products
The LUXGEN car models marketed in China will have especially "intelligent" and luxurious features and equipment supported by Taiwan's strong information technology (IT) industry. The LUXGENs are expected to be the most expansive of independent auto brands in China.
From the very start, according to a senior Yulon official, the company decided to adopt totally different strategies for the markets in Taiwan and China. In the former, a very mature market, Yulon will try to stay competitive by keeping its car prices as low as possible; while in China, a much younger market, Yulon aims to avoid low-price tactics from the very beginning.
All of Yulon's senior officials express strong confidence in sales of LUXGENs in China. They stress that LUXGEN cars incorporate Taiwan's most advanced IT technology plus unmatched luxury equipment, which will highlight the much higher value of these models compared with their counterparts, whether produced by independent Chinese automakers or by international brands.
As Yen's announced at Yulon Dongfeng's establishment ceremony, the new venture aims to turn profitable in its second year of operation and sell 240,000 cars in 2014. By 2018, the company wants to be selling 500,000 units a year from a product lineup of 10 to 12 different models.