Chinese tigers prey on Europe’s roads

Date: 02/03/06

When China made its European debut at the Frankfurt Motor Show last September, pundits were quick to snigger at the inferior quality of models such as the Landwind, a Vauxhall Frontera clone manufactured by Jiangling Motors Corp. They were, perhaps, missing the point.

The models on show at Frankfurt were rough and ready compared with their European counterparts. "In terms of design and perceived quality, clearly they are on a learning and growing curve," says Alfredo Filippone, spokesman for the Brussels-based European Automobile Manufacturers’ Association.

But, far from seeking to compete on the same level as their European elders, the ‘young tigers’, as China’s manufacturers are called, are content to prove one small point for now, namely that it is possible to sell their vehicles in a highly sophisticated market. Numbers and quality can wait.

That these vehicles can be sold has already been proven. Last year, 700 Landwinds were sold by Dutch car dealer Peter Bijvelds, at 30-40% cheaper than the closest competitors. "What we have found is that there is huge demand for low-budget cars in Europe," says Bijvelds, who has been hard at work since last year, setting up an EU-wide network of dealerships and spare parts distributors. Once everything has been set up, Bijvelds believes he could go on to shift 10,000-15,000 vehicles a year.

Other cars are set to make inroads into the European market this year. Italian dealer DR Automobiles plans to sell 10,000 Happy Emissaries, manufactured by Hongta Yunnan Automobile Co, at just under EUR 6,000 apiece. The Chery Automobile Co, which will probably enter the US market in 2007, is currently negotiating with European dealers.

China became a net exporter of vehicles for the first time last year, with 135,000 shipped out in the first 10 months of 2005, up 134% on the previous year, according to the nation’s ministry of commerce. "With the Chinese, what is significant apart from low costs is that they have a build-up of capacity which is in excess of their domestic demand," says industry analyst Toby Procter, director of Trend Tracker, an organisation specialising in automotive industry research.

"European manufacturers will have to react fast. Their production costs are too high," says Bijvelds. He is right, particularly when it comes to competing in price-sensitive markets in Eastern Europe. (Bijvelds is currently setting up Landwind dealerships in Poland, the Czech Republic, Hungary and Lithuania.)

The signs are that manufacturers are reacting. Major names such as Volkswagen, Citroën and Peugot have already invested in joint ventures in China. As well as benefiting from ridiculously low costs, they stand to gain a foothold in a major growth market.

One such example is the alliance between Brilliance Jinbei Automobile Co and BMW. Each party has a 50% stake in the joint-venture factory in Shenyang, north-east China, which produces the Zhonghua sedan and the BMW 3 Series and 5 Series vehicles.

American manufacturers, such as Ford, which has a 30% stake in Jiangling, maker of the Landwind, are also driving forward this trend. International collaboration of this sort will radically improve the quality of China’s products.

"The Chinese are going to be a substitute production market for companies that have set up joint ventures there," says Procter.

It seems clear that European car manufacturers will no longer enjoy the dominant market position they have held over past decades, but they are moving fast to ensure they are well placed to offset losses in domestic markets with gains in China’s rapidly growing economy. Whether or not this strategy succeeds is still in the balance. But low-cost Chinese cars look set to become a regular fixture on European motorways.

• Lorraine Mallinder is a freelance journalist based in Brussels.

Article takes a look at China's emerging car sector and prospects for exports to Europe.
Article is part of a European Voice Special Report, ' European car industry'.