European car makers struggle to get grip on China

Germany’s Volkswagen AG, market leader in Europe and biggest foreign brand in China with a 17% share, said this week China had overtaken Germany as its biggest market. Its March sales in China rose by a third. Volkswagen, the fourth-largest car group in the world by production volume, is with General Motors Corp among the early arrivals, having been in China since 1984. “China only makes an impact for Volkswagen, for the other European makers it remains very limited,” said Philippe Houchois, car industry analyst at JP Morgan in London. But that may be changing as Volkswagen faces growing competition from a fresh batch of foreign makers and maturing local rivals.

Volkswagen’s Audi unit will on Saturday unveil its Q5 sports utility vehicle at a world premiere at the Beijing Auto Show -- a clear sign of its commitment to the market. There are reports the vehicle may also be made in China. Local production seems a pre-requisite to stay competitive in a fast moving market with many cut-price local rivals and enormous logistics problems in a country characterized by several huge, dense and prosperous urban centres separated by bad roads and immense poor areas.

SOPHISTICATED MARKET
France’s PSA Peugeot Citroen has decided China is a sophisticated market with its own demands and requirements, not just a huge market for old models and cast-off cars. PSA now makes some China-specific models and Citroen aims to make a splash with the C5 executive car to be produced by its Dongfeng Peugeot Citroen Automobile Factory joint-venture to local market preferences. PSA sold 23,373 cars in China in March with Dongfeng – the country’s third-biggest carmaker, which also has venture deals with Nissan Motor and Honda Motor.

Other European brands have also stepped up their activities in China. Fiat recently concluded a partnership deal with Chery and aims to launch a cheap car to China based on the Palio. The Italian car maker, which also wants to sell its upmarket and sporty Alfa Romeo cars, sold its stake in loss-making joint venture partner Nanjing Automobile to VW this week. Nanjing merged with SAIC Motor, which was already a VW partner.

BMW, the world’s largest premium car maker, sold 43.2% more cars in mainland China in the first three months of 2008, boosted by the 3 series and the Mini. BMW has a manufacturing venture with Brilliance China Automotive Holdings Ltd in the northern city of Shenyang.

Daimler opened its BBDC plant with Beijing Automotive Industry Holding 2006 to make the Mercedes-Benz E-class and the Chrysler 300c. Following the sale of Daimler’s majority stake in Chrysler to private equity firm Cerberus last year, the two firms kept their stakes in BBDC.

Among major European brands, only Renault is without a major presence in China after a failed attempt to make the Megane mid-sized car there in 2005. The French company, headed by Carlos Ghosn, is focusing on developing in Latin America and Russia, where it bought a 25% stake in Lada maker AvtoVaz earlier this year. But were it to decide to make cars in China, it already has some ground at its disposal adjacent to a plant of alliance partner Nissan and Dongfeng. (Reuters)