Chinese auto makers are on the prowl in overseas markets from Egypt to Ecuador and are enjoying surprising success.
Exports were up a whopping 50% to 849,500 units in 2011, and China’s Minister of Industry and Information, Miao Wei, expects annual shipments to rise to 1 million in the next year or two.
More than 190 countries and regions are being targeted by eager Chinese auto exporters focusing mainly on emerging markets in Asia, Africa, the Middle East and South America, where a taste for their small, inexpensive cars has grown rapidly.
“More and more Chinese original-equipment manufacturers are putting more resources outside China. Though often criticized for their poor quality and copycat designs, these cars can still find demand in emerging markets like China,” says Marvin Zhu, an LMC Automotive analyst in Shanghai.
There’s no mystery about the increased momentum. Industry experts point out that the slowdown in sales growth in China, from double-digit increases in the past to just 2.5% last year, is a compelling reason for Chinese auto makers to seek customers abroad to keep their assembly plants operating.
Morgan Stanley analyst Adam Jonas reports in a research paper that Chinese plants ran at 81% of capacity last year, compared with 88% in 2010, and concluded that trend is likely to continue.
“The rapid growth phase of China’s auto market is coming to an end, and we see exports as one possible outlet for all the capacity we have built up. We need to go beyond the China market to survive,” Xing Wenlin, vice president-overseas markets for Great Wall Motor, says in a Reuters report.
Leading the movement overseas are China’s national car makers, an aggressive group overshadowed in the domestic market by the large foreign-Chinese joint ventures that routinely account for seven out of every 10 light-vehicle sales.
In first place is Chery, with exports jumping 73% to 160,200 units in 2011 – one-quarter of the company’s total sales – and ambitions for 200,000 this year. Chery exports to more than 80 countries and regions and has 17 production plants overseas. The China Daily reports more plants are planned for Myanmar and several African countries.
For Great Wall, China’s second-largest vehicle exporter, exports were up 65% in 2011 to 83,000 units – 17% of total sales last year – and were shipped mainly to Russia, South Africa, Australia and Chile. The auto maker is aiming for an increase to 100,000 this year and 300,000 in 2015. Great Wall operates 12 production plants abroad, as well.
Other exporters include JAC, whose shipments more than tripled to 66,300 units in 2011, and Zhejiang Geely, whose exports almost doubled last year to 39,600.
Some of China’s large auto making joint ventures are showing interest in exporting, too.
“International auto makers are now paying more attention to emerging markets and using existing production bases in China, which is cheaper than exporting from Europe or North America,” says senior analyst Namrita Chow with IHS Automotive.
For example, General Motors China exported 47,946 vehicles last year, more than triple the 14,619 in 2010, via its Shanghai General Motors (SGM), SAIC-GM-Wuling (SGMW) and FAW-GM joint ventures.
Last year, SGM exported more than 31,000 Chevrolet New Sail small sedans to Chile, Peru, Bolivia, Algeria, Libya, Iraq, Angola and Tahiti, and complete-knocked-down kits to Ecuador.
SGMW exported more than 14,000 N300 passenger and cargo vans in 2011 to Colombia, Ecuador, Chile, Egypt, Iran and Angola and those exports are expected to reach 20,000 units this year. Kevin Wale, president and managing director-GM China Group, says the auto maker is starting to ship CKD kits to Egypt, India and Colombia, and is studying exports to other markets.
FAW-GM is exporting light-duty trucks to countries and regions including Bengal, Kazakhstan, Kenya, Sri Lanka and Uruguay.
- The Daimler-BAIC JV in December began exporting Mercedes-Benz long-wheelbase E-Class sedans to South America.
- BMW’s JV with Brilliance has begun shipping 5-Series cars to Middle Eastern markets.
- IHS Automotive reports the JV between Dongfeng and PSA Peugeot Citroen began exporting its 408 compact sedan to Egypt last June and lists Hyundai, Nissan, Mazda, Suzuki and Volkswagen among auto makers expected to join the exporters from China.
- Honda has begun shipping Chinese-made Fit subcompacts to Canada, in part because the strong yen is making it increasingly difficult to profitably build vehicles in Japan for export. Rival Japanese auto makers may decide to make the same move for the same reason.
No one suggests, however, that exporting vehicles from China is an easy alternative for either international auto makers or Chinese national producers.
Global competition is becoming ever fiercer and China no longer is the low-cost producer it once was. Rising wages and other manufacturing costs and a stronger yuan are new impediments to sales, and protectionist walls have begun to rise overseas.
Zhu says Russia was the largest destination for Chinese-made vehicles in 2007, receiving 57,000 units from Chery, BYD, FAW, Geely and others. But during the financial crisis in 2008, several protectionist policies were introduced, including increased duties and tighter validation standards. As a result, “the export volume to Russia plummeted to 7,000 units in 2009.”
He adds that Brazil, China’s largest export destination in 2011, raised import duties last September. “This action, aimed at protecting the local auto industry, is expected to hurt Chery, Chang’an and Jianghuai, which were starting to expand their business there.”
China Daily reports the 30% increase in these duties, to a maximum of 55%, has forced Chery to cut its 2012 forecast for Brazil sales in half to 30,000 units, below the 33,000 sold in 2011. But countermeasures are under way: Last July, Chery began building a $400 million plant in Brazil with initial annual capacity of 50,000 units and a production start scheduled for 2013.
The net result of this activity could be that maintaining the hectic pace of export growth set in 2011 likely will be difficult and may be impossible – and the ultimate goal of the Chinese national auto makers, the U.S. and Europe, may be pushed farther into the future.
Growth already has begun to slow. The China Association of Automobile Manufacturers reports vehicle exports in January and February were up 23.5% to 117,000, an annual rate of 702,000. But Great Wall President Wang Fenying cautions “there is a long way to go before Chinese-brand vehicles become big international sellers like Toyota or Volkswagen.”