Wednesday, July 18, 2007

2010: first non-Chinese car maker to sell new brand in China

Honda said it will start selling cars with its Chinese partner Guangzhou under a new brand in 2010, becoming the first foreign car maker to develop an original brand in China.

Honda and Guangzhou will spend about $250 million to build a new Chinese research and development center to develop the new brand, which doesn't yet have a name. The first few models, which will be derived from existing Honda cars, will likely be priced below $10,000. Analysts say the new Guangzhou Honda line will allow Honda to penetrate China's growing market for inexpensive cars without diluting its brand image.

Honda's move comes at a time when the Chinese government is putting pressure on foreign auto makers to share more of their technology and resources with domestic companies so that they can eventually produce vehicles with standards high enough to export to other markets. Under Chinese law, a foreign company has long had to have a local partner in order to produce cars for the Chinese market. More recently, the central government has been urging China's major state-controlled car companies, many of which produced foreign-brand cars, to build their own brands.

The potential for foreign auto makers is huge in China, where passenger-car sales rose by more than one million vehicles, or 35% last year. If this growth keeps up, China could surpass the US as the world's biggest vehicle market by 2010.

Honda's new research center and brand will give its Chinese partner increased access to technology such as the development of hybrid vehicles and other environmentally-friendly innovations that Honda is known for.

For Tokyo-based Honda, the new brand will give it a boost in the fast-growing Chinese market. Honda, Japan's No. 2 auto maker by sales after Toyota, became the first Japanese company to sell cars in China in 1999, and sold about 320,000 vehicles last year. But Toyota, which entered China in 2002, is the fastest growing and recently surpassed Honda as the best-selling Japanese auto maker in the market. Toyota sold 212,000 cars in China in the first-half of 2007, up 77% from a year earlier.

Honda, which analysts say gets 80% of its operating profit from the American market, has been aggressively expanding in China as demand in the US shows signs of slowing. Last year Honda launched its upscale Acura line in China. In September, a new joint-venture plant in Guangzhou opened that will produce 120,000 Accords annually, nearly doubling the number of Accords produced in China.

Honda says it expects to sell 310,000 cars in China this year. The Fit subcompact which retails for about $12,000 and the CRV crossover sports utility vehicle priced at around $20,000 are the best sellers.

In addition to expanding its domestic presence, Honda is increasingly manufacturing cars in China for export. In 2005 Honda began exporting the Chinese-made Jazz compacts to Europe and will export about 43,000 cars this year, up from 24,000 units in 2006. (info from The Wall Street Journal)

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