China auto shows move into top tier

The Detroit News, April 18, 2011

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As biggest global market, country gets carmakers' attention

Christine Tierney / The Detroit News

China became the world's biggest auto market in 2009, when other regions were reeling from the worst downturn in decades. But as demand for cars in China rose again last year, its sales shot past even the historic peaks of the U.S. market.

With China established as the biggest market, its annual auto shows — held alternately in Shanghai and Beijing — are now top venues for automakers seeking to display their newest models and technology.

Some would argue the top venues.

"Not all automakers have to be at all the global shows. But everyone has to be in Shanghai and in Beijing," said Michael Robinet, Northville-based vice president of global forecasting at consulting firm IHS Automotive. "That should tell everyone how important that country is to the global auto industry."

This week, automakers will unveil major models at the Shanghai Auto Show that they once would have reserved for the top-tier Geneva, Frankfurt or Detroit shows.

BMW is introducing its 6 Series coupe, Audi is staging the world premiere of its Q3 compact SUV, while General Motors Co. will roll out the all-new Malibu midsize sedan.

GM's decision to introduce the Malibu in Shanghai, instead of at the New York show this week, sends a clear message.

"It's saying, 'We sell more vehicles here than we do in North America,'" said Michael Dunne of Dunne & Co., a Hong Kong investment firm. "It's a signal of where GM has its priorities."

Because China is still an emerging market even though it's huge — the equivalent of a baby whale — growth rates are steep and uneven, and risks of reversals abound.

But the opportunities for automakers are enormous. Sales in China rose 32 percent last year, to 18.1 million vehicles, after surging 46 percent in 2009.

Most forecasters expect slower growth this year, but still in double digits, led by burgeoning demand for cars in China's secondary cities and inland regions.

The congestion in the affluent coastal cities, coupled with rising incomes in China's hard-scrabble interior, are fueling two trends that will be evident at the show: the proliferation of advanced, clean technologies and the rise of new "indigenous" brands.

GM and its Chinese venture partners already sell vehicles under the Buick, Chevrolet, Cadillac and Opel brands. Its partners, Shanghai Automotive Industry Corp. and Wuling Motors, also have their own brands, such as SAIC's Roewe.

This week, GM and its partners will introduce the first model produced under a new brand, Baojun, by the GM-SAIC-Wuling venture.

New models coming

The Baojun 630 is a family car almost as big as the Malibu, but will cost thousands of dollars less. GM isn't confirming the price, but Chinese media expect it will be between 50,000 and 70,000 renminbi, or $7,700 to $10,700.

Nissan Motor Co. and Honda also have announced plans for indigenous, or local, brands as the Chinese government has been urging automakers to do.

Analysts say that, as Chinese authorities see it, they are offering foreign automakers access to a huge market — and in turn want global automakers to help establish China's car industry. That's why the government has allowed foreign carmakers to produce vehicles locally and avoid import duties only in ventures with local partners.

Under this arrangement, foreign and Chinese carmakers have been raking in profits, but the desired technology transfer hasn't taken place.

As a result, authorities are pressing global automakers harder to create indigenous brands with their partners, although it isn't a formal requirement.

"It's not a black-and-white thing," said Bill Russo, president of Synergistics Ltd., a consulting firm based in Beijing. "It's never black and white in China."

Nissan and its partner Dongfeng Motor Group will show a concept in Shanghai for a vehicle to be built under the new Venucia brand.

Honda has created the new Li Nian brand with a Chinese partner, and Germany's Volkswagen AG is said to be close to announcing a local brand.

Priority on electric vehicles

Some executives with non-Chinese automakers resent what they consider the government's strong-arm tactics, but others say foreign automakers also stand to benefit.

Currently, they don't have vehicles for the next big wave of customers: first-time buyers in China's interior.

"You probably don't want to take your brands down enough to reach consumers in those segments," Russo said.

The government's priorities also will be reflected in a slew of plug-in hybrid and electric vehicles from global and Chinese brands at the Shanghai show.

Ford Motor Co. is expected to show electric Focus and C-Max models, while BMW and its venture partner Brilliance Automotive will unveil a prototype for a plug-in hybrid developed on the long wheelbase version of BMW's 5 Series sedan.

China's government is investing large sums and funding big pilot projects to encourage demand for clean vehicles. The country already is struggling with air pollution in its cities, and it wants to break its growing reliance on imported oil.

The government in Beijing is now expanding its New Energy Vehicle plan to include more subsidies, consumer incentives, tax breaks and fleet purchases of plug-in and electric vehicles.

Chinese automakers, seeing an opportunity to compete in this fledgling sector of the auto industry, will be displaying their own high-tech cars.

State-controlled Beijing Automotive Industry Holding is to show prototypes of an electric car and compact minivan.

China's leading manufacturer of advanced technology vehicles, BYD Auto Ltd., will exhibit its F6DM model and unveil a 3A concept for a sedan. BYD, a private company that counts billionaire Warren Buffett among its investors, also has a venture with Germany's Daimler AG.

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