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Chinese car advances into Japanese backyard

From:Internet Info Agency 2019-07-24 18:07:59

From a small start, the influence of Chinese automakers in Southeast Asia is rapidly expanding. Although they still have some difficulties to overcome, they may still challenge Japan’s long-standing dominance in the region within 10 years.

This region with a population of 650 million has a growing middle class and a strategic location in southern China, which is very attractive to Chinese manufacturers. Their transfer to overseas is understandable. In China, the growth of market demand is declining, and the US-China trade war is also full of uncertainties.

However, the challenge is daunting. Japanese auto companies have driven away a large number of competitors in the past few decades and still occupy more than 80% of the market. Due to the inability to weaken Japan's dominant position, GM and Ford retired in 2015 and 2016 respectively, and the attempt by China Automotive Group to enter the Southeast Asian market failed. Chery and Geely and other brands have withdrawn after 10 years of investment.

But as investments in research and development, technology and assets begin to pay off, the chances of Chinese automakers succeeding in Southeast Asia have increased, and they have gradually changed consumers' long-term perceptions of China's auto quality and after-sales service.

“Japan has turned Southeast Asia into its own industrial backyard and has protected this site without mercy. China is aware of this and has entered the market with a 10-year cycle.” Industry consultant, former head of GM Indonesia Michael Dunne said.

Since its listing in Indonesia, Wuling has become the sixth-best-selling passenger car brand in Indonesia in less than two years, outperforming popular Japanese competitors such as Nissan, Datsun and Mazda. In Thailand, the British brand MG, which SAIC Motor acquired 10 years ago, nearly doubled its sales in 2018 and has become the ninth most popular brand, second only to Suzuki, ahead of Chevrolet.

The market share of Chinese brands in the region is still only 1.3%, as most of their production investment in the region has been carried out in the last three years. Sales are growing rapidly from a low base, with a 133% increase last year and an 86% increase in 2017.

IHS Markit expects sales growth to slow to 27% this year, and will further slow down to 23% in 2020, and their market share will rise to 1.9% by the end of next year.

“It takes a while for people to trust Chinese brands, but as automakers continue to improve their products, they will be trusted,” said IHS Markit analyst Jessada Thongpak.

He predicted that Chinese brands will not be able to enter Southeast Asia in five to seven years. Dunn said that the share of Chinese brands in the Southeast Asian market may reach around 20% in 10 years.

Regional distribution

SAIC, China's largest auto company, has the most extensive footprint in Southeast Asia, which is the result of its joint ventures across brands, regions and markets.

In Indonesia, this state-owned group is represented by SGMW Automobile. SGMW is a joint venture subsidiary of SAIC and General Motors and Liuzhou Wuling Automobile established in Mainland China. The company's plant in West Java is worth $700 million, with an annual output of 120,000 Wuling brand cars, more than half of which are locally produced.

Since its listing in Indonesia in July 2017, Wuling has sold more than 25,000 vehicles, thanks to strong demand for Confero and the more luxurious Cortez series. The latter's basic retail price is Rp203 million (about $14,500), about two-thirds of the price of Toyota Kijang Innova.

Both cars have won awards, including the best mid-size MPV and the best value for money, and received praise from automotive experts.

SAIC has been carefully selecting regional partners. In Thailand, it sells MG MG branded cars with a joint venture with local company Charoen Pokphand. A $310 million plant in Eastern Economic Corridor, Thailand, was commissioned in 2017 and produces up to 100,000 cars a year for the Thai market.

SAIC also designated the Filipino dealer Covenant Car Company to sell MG in the Philippines, which also sells GM. In addition, SAIC has reached an agreement with local business group Ayala Corp to promote its Maxus brand, which currently sells Isuzu, Honda and Volkswagen cars in the Philippines.

Wuling Motors' business scale continues to expand. It plans to expand its Indonesian dealer network from the current 96 to 120 by the end of this year, enough to cover all Indonesian provinces and almost all major cities. Dongfeng Motor, based in Wuhan, China, is planning to increase its $150 million investment in the Banten plant to $300 million. Dongfeng Motor operates its DFSK brand in Indonesia. Since its opening in January 2018, the brand has sold about 2,000 cars, surpassing the sales of Hyundai, Lexus and Volkswagen in Indonesia.

In 2012, Geely withdrew from Indonesia in the face of fierce competition. Today, it is back in the area, but in a different way. The company acquired a 49.9% stake in Proton Malaysia in June 2017 and subsequently launched the X70. The X70 is a SUV-coupling model that helped push Proton's sales in the first half of this year to 60% year-on-year. Kiranjit Singh, Director of Consulting at Ipsos Business Consulting, said: "The collaboration with Geely has helped Proton rejuvenate."

Dream of a single market

Although many countries in Southeast Asia represent a considerable market by themselves, their dream is to achieve comprehensive regional integration. For automakers, deeper market penetration may depend on the full implementation of the ASEAN Economic Community, a political push for a single market.

However, despite ASEAN’s series of high-end talks since 2015, regional trade barriers have not decreased. Car tariffs may have fallen, but the government of Malaysian Prime Minister Mahathir Mohamad is considering restrictions on imported cars to protect domestic manufacturers, and Indonesia is considering similar measures.

Gerwin Ho, Moody's senior credit officer, said that, despite this, automakers still have reason to expect ASEAN to become a production center because the region is slow to conclude a new trade agreement under a multilateral framework such as the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership. Although neither progress is particularly fast, the promise of frictionless trade is irresistible to manufacturers seeking opportunities.

But this is not the only reason why Chinese brands have entered Southeast Asia. For a long time, Southeast Asia has been regarded as the backyard of Japan, with a bit of condescending meaning. Southeast Asia is also an integral part of China's evolving global strategy. This means that Chinese automakers will continue to expand into the region in the commercial sector, provided that they are approved by Chinese government agencies.

Dunne said that it would be unrealistic to obtain loans or expand outwards without government support.

Editor:Internet Info Agency