Tour guide Chen Libin is waiting for General Motors Co. and Honda Motor Co. to roll out their new China-only brands before replacing his Xiali A+ sedan.
Chen will spend up to 80,000 yuan ($12,153) on a car he’ll drive 300 kilometers a day around the Inner Mongolia grasslands. Models by domestic automakers like Tianjin FAW Xiali Automobile Co. start breaking down after two years, while foreign cars go at least five years without major problems, he said.
“These brands are definitely something I will consider,” Chen, 30, said of GM’s Baojun and Honda’s Li Nian marques. “Foreign technology offers drivers more comfort, fuel efficiency and a lower cost of maintenance.”
GM, Honda and Nissan Motor Co. are creating unique brands for the world’s biggest car market as they try to boost sales in China’s interior, where incomes rose almost 11 percent last year. The cheaper nameplates will help them compete on price against local manufacturers without diluting their cache among Chinese buyers, said John Zeng, an industry analyst at J.D. Power & Associates in Shanghai.
“It’s a win-win situation,” Zeng said. “Consumers pay a lower price for foreign-brand technology, and the foreign makers benefit from an increase in sales volume without hurting their brand image.”
BYD, Chery Competition
These “low-budget cars” will use older model platforms and have few extra features, said Leah Jiang, an analyst with Macquarie Research Ltd. in Shanghai. Anti-lock brakes, automatic air-conditioning and reclining seats may be excluded to keep prices as low as 50,000 yuan, said Koji Endo, an auto analyst at Advanced Research Japan in Tokyo.
That market segment is dominated by domestic automakers BYD Co., Geely Automobile Holdings and Chery Automobile Co. Local brands sold three of every four cars priced below 50,000 yuan, and more than half of those costing between 50,000 and 80,000 yuan, according to Jiang.
“I’m not worried about these new brands at all,” said Jin Yibo, assistant general manager for Wuhu-based Chery, whose sales increased 36 percent last year. “Chinese cars offer better value for money, and we understand the local market and consumer very well.”
18 Million Sold
Vehicle sales grew more than 32 percent to almost 18.1 million in 2010. Sales are expected to grow about 15 percent this year, with about two-thirds of buyers coming from cities where the average annual income is less than $5,000, according to JD Power figures.
“If these brands are successful, they are going to have a much higher growth rate,” said Bill Russo, a Beijing-based senior adviser at Booz & Co. “The number of people that can shop at that price point is much larger.”
Consumer purchasing power was boosted by economic growth of 10.3 percent last year, the government said. Per capita net income in rural areas rose 10.9 percent -- the biggest gain since 1984.
The economy likely will grow 9.8 percent this year, the state-run China Daily newspaper reported this week, citing a government academy. Government officials have indicated that the country’s upcoming five-year plan will make a renewed push to boost domestic consumption.
‘Treasured Horse’
GM, the largest foreign automaker in China, will start selling the four-door Baojun 630 compact sedan early this year through its SAIC-GM-Wuling Automotive Co. joint venture. The car will be available at more than 100 dealers, the company said.
GM, which hasn’t announced Baojun prices, is targeting 15 percent growth next year after sales increased 29 percent last year to 2.35 million vehicles. The Detroit-based company’s shares have gained about 15 percent since a November initial public offering.
“There is tremendous potential in tier-two and tier-three cities,” Kevin Wale, GM’s China president, said last month after unveiling the Baojun, which means “Treasured Horse.”
First-tier cities include wealthier Shanghai, Beijing and Guangzhou, according to the National Bureau of Statistics. The second tier includes provincial capitals and the third includes smaller cities.
Honda, Japan’s second-largest carmaker, and local partner Guangzhou Automobile Group Co. expect to start selling the Li Nian S1 sedan early this year. The brand, which means “Ideal,” uses the City platform and targets entry-level consumers with 1.3-liter and 1.5-liter engines, the Tokyo-based company said.
‘Morning Star’
“We are aiming that these Li Nian users will step up to the Honda brand,” said Takayuki Fujii, a Beijing-based spokesman for Honda.
The company declined to comment on the price. Honda sales in China increased 12 percent last year are expected to grow 10 percent this year, the company said.
Nissan, Japan’s third-largest automaker, and local partner Dongfeng Motor Group Co. said their upcoming Qi Chen, or “Morning Star,” will meet rising demand for cheaper models. They wouldn’t comment on price, though Endo said it likely will be priced between 50,000 and 70,000 yuan.
The car will have the “technologies, quality level, engineering standards” of a foreign brand, said Toshiyuki Shiga, chief operating officer of the Yokohama, Japan-based company.
“I can see some optimistic forecast in this market,” Shiga said last month.
Volkswagen AG, China’s second-largest foreign car manufacturer, and local partners SAIC Motor Corp. and China FAW Group Corp. also may create a China-specific brand, Karl-Thomas Neumann, the company’s China chief executive, said last week.
Hao Hongfu, 32, is waiting for the Baojun before deciding on a replacement for his Beiqi Foton Motor Co. pickup truck.
“I want to buy the car because I think cars made by companies backed up by foreign automakers have better quality,” said Hao, a fruit wholesaler in Shandong province. “I have been driving local automakers’ vehicles and would very much like a change.”
--Liza Lin. With assistance from Tian Ying, Li Yanping in Beijing. Editors: Michael Tighe, Bret Okeson.
To contact Bloomberg News staff for this story: Liza Lin in Shanghai at +86-21-6104-3047 orllin15@bloomberg.net
To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net
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