LONDON - Domestic carmakers eventually will overtake Western carmakers to dominate China's auto industry, analysts predict.
"My money is on the local players," said Philippe Houchois, an analyst with J.P. Morgan. "First Auto Works, Shanghai Automotive [and Dongfeng] will be major players in the Chinese auto industry."
China's No. 1 car producer, FAW is partnered with Volkswagen, Toyota and Mazda. It also sells a few of its own-brand vehicles. SAIC, the country's No. 2 car builder, produces VW and General Motors vehicles in separate joint ventures.
Shanghai Automotive wants to start production of its first SAIC-badged car, a sedan based on the Rover 75 lower-premium model, in late 2006.
Eventually, Chinese manufacturers will gain strength, the analysts agreed. Winners will emerge from both small and large Chinese automakers because of strong underlying market growth, said Steven Blackman, a London-based vice president at Ernst and Young.
"I see two paths to success," he said. "There is a corporate way to do things, like FAW, SAIC and Dongfeng, and there are entrepreneurial companies such as Chery. The Chinese government wants the big corporations to get out there and enter the top six globally. If the small players get help, they can win, too."
Chinese automakers will pattern themselves after Korean carmakers, said Adam Jonas of Morgan Stanley.
"Twenty years ago, makers like Hyundai, Daewoo and Kia were laughed at in the West, but not today," he said. "There will be Chinese players globally and they will be quicker as they adapt or steal technology. They will be competitive."
Western, Korean and Japanese automakers that are introducing lots of new products will do best in China in the short term, Jonas said.
He said new products capture attention because Chinese buyers have little brand loyalty yet. With two or three new models each over the next six months, Toyota, Nissan and General Motors are in the best position, he said.
"Normal [brand] trends don't hold here," Jonas said. "The auto sector in China is a fashion industry. Whoever comes up with the most shiny, cheap products will win for now."
Nigel Griffiths, Global Insight's director of international automotive industry research, said European automakers will be forced to spend more to create sedan body styles for China. That would give Korean manufacturers an advantage in China.
"China likes sedans, but Europeans make hatchbacks," he said. "So they don't get the economies of scale that Koreans have because they have sedans already."
The emergence of China's automakers globally may be delayed about a year when the Chinese yuan is devalued, a move that J.P. Morgan expects within six months, said Houchois.