YANG JIAN

Foreign brands race to develop vehicles for Chinese consumers

COMMENTARY
Yang Jian is Managing Editor of Automotive News China
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BEIJING -- It's unusual for automakers to design vehicles exclusively for one foreign market.

But that's quickly becoming the new normal in China, judging from the unveilings last month at the Beijing auto show.

Ford Motor Co. introduced the Ford Escort sedan, which is aimed at Chinese consumers. The new Escort is similar to the Focus in size but offers more interior space.

Meanwhile, Fiat Chrysler disclosed that its joint venture with Guangzhou Automobile Group Co. may produce a Jeep model developed for the Chinese market. Details about the model are unavailable.

Both automakers likely were influenced by the success of China's two leading foreign automakers, Volkswagen AG and General Motors.

In 2008, VW introduced the Lavida compact car, which is available only in China. In 2010 GM launched the Chevrolet New Sail subcompact, which was mainly developed for Chinese consumers and has since been exported to numerous countries.

Both vehicles are 20 percent cheaper than comparable cars made by foreign rivals in China. The Lavida starts at 100,000 yuan, or $15,979 at current exchange rates, and the New Sail has a starting price of $9,587.

Both vehicles offer features that appeal to Chinese car buyers, such as the wood trim on the Lavida's control panel and the sporty side profile of the New Sail.

Those two cars have generated huge volumes for their companies. Last year, VW sold 374,000 Lavidas and GM delivered 276,000 New Sails.

Yet other global brands were reluctant to follow suit, and they had good reasons to be wary.

To make a profit on a product developed for one market, an automaker must achieve sizable sales volumes and low manufacturing costs.

VW and GM each produced and sold more than 3 million vehicles in China, so they can achieve economies of scale. But smaller rivals might struggle to sell enough developed-for-China vehicles.

An automaker also needs a strong design team in China that knows the tastes of local customers. And that would be a costly investment for smaller automakers.

But China's long-term growth prospects are so strong that foreign automakers are overcoming their doubts and fears. After becoming the world's largest auto market in 2009, China has had its light-vehicle sales continue to grow 10 percent annually.

It is true that in China, a developing country, most consumers still want low-priced vehicles. But they also like sporty design and fine interior materials.

And there's another payoff for automakers that design China-only vehicles. If these models succeed in China, they may do well in other emerging markets, too.

After Shanghai GM launched the New Sail in China, for example, it subsequently found profitable export markets for it in Chile, Peru, Algeria, Libya and other countries.

So it looks as if China-only models can be worthy investments for foreign automakers.

Now, Ford and Chrysler are poised to offer some vehicles developed specifically for China, and we can expect other global brands to do so, too.

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

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