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Chinese auto makers looking abroad for growth

Published on October 31, 2012 by Joey Wang

Chinese auto makers looking abroad for growth

Battling a slowdown and intense competition in their home market, Chinese carmakers are increasingly looking to exports for growth.

Last week Chongqing-headquartered Lifan Industry Group Co announced that it will invest heavily in overseas operations in the next three years in a bid to more than double its exports to 120,000 vehicles in 2015, some 40 percent of its total sales.

Lifan’s exports are likely to hit 53,000 units this year, said the company.

The private-sector company that got its start making motorcycles is now the top Chinese automaker in Russia, where it delivered nearly 15,000 vehicles in the first three quarters.

Adding to the current lineup of sedans, its first SUV – the Lifan X60 – will go on sale in Russia next month, when it will also open its first directly operated showroom in the neighboring country.

Lifan started its overseas business in 2007 and has since built assembly lines in Russia, Ethiopia, Iran, Azerbaijan, Uruguay and Iraq.

It is just the latest in a string of Chinese automakers to announce ambitious overseas development plans.

Dongfeng Motor Corp, the second-largest auto group in China by sales, said earlier this year that it aims to greatly increase foreign sales of its own-brand vehicles. Its projections call for 300,000 units a year in overseas sales by 2016, up from about 63,800 in 2011.

Zhejiang Geely Holding Group, now the owner of Volvo Cars, is also looking for rapid expansion overseas with a compound growth rate above 30 percent in the next three to five years, said its spokesman Yang Xueliang.

With strong demand, especially in Arabian countries, full-year exports for Geely this year are likely to hit 100,000 units, well above the original target of 80,000 units, Yang said.

Geely’s exports in the first nine months reached 68,600 vehicles, about 20 percent of its total sales in the period.

Intense competition

Total vehicle exports by Chinese automakers in the first three quarters surged by 28 percent to 785,300 units, according to statistics by China Association of Automobile Manufacturers.

In contrast, the domestic market was sluggish as auto sales edged up only 3.4 percent in the first nine months, a sharp fall from the double-digit growth in 2009 and 2010.

Zhang Lin, Geely’s vice-president, said that the company’s effort to develop overseas markets is partly due to slowing growth at home and intense competition as almost all foreign car brands have now arrived.

He also noted that additional overseas sales help Geely’s return on investment, underlying the importance of economies of scale in the auto industry.

Analysts agreed that overseas markets will play an increasingly important role in the development strategy of domestic carmakers.

“Globalization is a necessary way for carmakers to withstand risks, while demand for economy vehicles exists in many developing countries”, said Lin Huaibin, an analyst with consultancy IHS Automotive.

“With South Korean brands moving upward, the former segment dominated by them is now left to Chinese automakers,” he said.

He added that competition in many other developing countries is not now as intense as in China because major global automakers haven’t invested as they have in China.

Better margins

Zeng Zhiling, director of LMC Automotive Asia Pacific Forecasting, added that carmakers can have better profit margins overseas due to tax breaks offered by the government to encourage exports.

According to IHS Automotive, passenger vehicle exports by Chinese carmakers could almost double in the next three years, up from an estimated 600,000 units this year to about 1 million in 2015.

Along with increasing volume, Chinese carmakers have switched their overseas business mode from solely trading to local assembly.

Earlier this month, Geely’s first assembly plant in Egypt started operation with designed capacity of 30,000 units a year.

The facility in Cairo is the carmaker’s third overseas factory to assemble completely knocked down cars. Its others are in Russia and Indonesia, soon to be joined by a plant in Uruguay at the end of the year.

Chang’an Automobile Group is also expanding its global presence. It recently signed an agreement with a local dealer group for an assembly plant in Paraguay in two years that will make vans.

The company said in a statement that expanding overseas markets is a “new and important growth engine” for it in the next three to five years.

Via: ChinaDaily.

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