Finally, a Chinese company forges a real partnership with a foreign brand

Yang Jian is managing editor of Automotive News ChinaYang Jian is managing editor of Automotive News China
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SHANGHAI -- For a long time, the word "partner" has been abused by automakers operating in China.

When foreign automakers refer to their Chinese joint-venture "partners," we know they are not using the word in its real sense.

But when Volvo Car Corp. and Zhejiang Geely Holding Group Co. announced a technology partnership earlier this month, we had good reason to believe they truly meant it.

Why? Let's start off by considering rival partnerships.

Global automakers are required by law to form a joint venture with a Chinese company, so it's not something of their own choosing.

Since both companies make cars, they are in fact potential rivals. That explains why foreign automakers typically withhold their technology from their Chinese partners.

Global automakers typically view their joint ventures as little more than corporate shells to set up assembly plants in China. There is barely any technology transfer.

But it's different with Volvo and Geely. Both companies are owned by the same person, a Chinese entrepreneur named Li Shufu. This allows them to align their interests.

Under the deal signed last week, the two parties will jointly develop small engines, a small-car platform, and alternative energy vehicles such as electric cars, conventional hybrids and plug-in hybrids.

So Geely will get cutting-edge technology. What does Volvo get from this deal?

The Swedish automaker will purchase parts together with Geely -- allowing both companies a discount. The partners can share production lines, and they can even share platforms.

All this will enable Volvo to reduce production costs in China.

Will the alliance with Geely cheapen Volvo's brand image? It won't, as long as the two brands are kept separate in marketing and sales. Li Shufu is a wise man and I believe he knows how to do this.

On balance, the deal's main beneficiary will be Geely, which will move upscale as it adopts Volvo's technology. Geely's domestic competitors should be jealous; they will never get this much help from their foreign partners.

Unintended consequences

How does all this affect Ford Motor Co. and Mazda Motor Corp.?

Changan wants to break its three-way joint venture, Changan Ford Mazda Automobile Co., into separate, two-party joint ventures -- one with Ford and the other with Mazda.

The breakup will lead to the creation of an extra joint venture. Under existing regulations, the Changan-Ford partnership can inherit the former three-party venture's license.

But Changan-Mazda will need a new license. And that's where things get sticky.

In a bid to prevent excess production capacity, Beijing recently announced it would not allow foreign automakers to form new joint ventures.

To circumvent the restriction, Changan decided to merge Changhe Suzuki with Changan Suzuki, then transfer the extra license to its planned joint venture with Mazda.

But after the strike at Changhe, Beijing blocked Changan's attempt to transfer the license.

That means that Ford and Mazda will have to stick, at least for a while, with their inefficient three-way partnership with Changan.

Ford and Mazda have ambitious plans to expand in the world's largest auto market. But the complexities of the new rules are holding them back.

You can reach Yang Jian at yangjian@autonewschina.com.

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