A growing number of big foreign car makers are developing new low-end brands and models just for the China market, with Nissan (Tokyo: 7201) and Volkswagen (Frankfurt: VOWG) the latest to make moves in that direction. These new initiatives come as the foreign giants look to keep their growth alive in China’s slowing auto market, posing a major new challenge to domestic nameplates like Geely (HKEx: 175) and Chery, which have been rapidly losing share to their better funded, more experienced foreign rivals. These moves also follow on the phenomenal success of General Motors’ (NYSE: GM) 2010 launch of the Chevy Sail, its first low-end model developed just for China which has posted growth rates in the 50 percent range for much of the last year and is now one of the nation’s best-selling models. Let’s look at the latest news first, starting with Nissan, which last week formally began production of its Venucia line of cars developed just for the China market in its partnership with Dongfeng Motors (HKEx: 489). (English article) Nissan first announced Venucia just over a year ago, so the brand itself isn’t exactly news. But all eyes will be watching to see how quickly sales grow for the first model, the D50, which will be priced starting at around 70,000 yuan, or about $11,000, which is roughly comparable to the Sail’s starting price of about 60,000 yuan. Meantime, German media are quoting a Volkswagen executive saying the company is planning to launch its own new brand to make low-priced, high quality cars for developing markets, starting at an even lower 5,000 euros per car, or about $6,600. (English article) The reports indicate that China, already one of VW’s top global markets, would be one of the primary markets for this new initiative, and I would expect the German car maker could launch the initiative with its main Chinese partner, SAIC (Shanghai: 600104). These new initiatives follow similar ones by Honda (Tokyo: 7267), which last year launched a new brand called Everus with Chinese partner Guangzhou Auto; and GM’s launching of its own made-in-China brand, Baojun, with its China partners also last year. All of these big foreign names are hoping to capitalize on China’s auto market, now the world’s largest, to develop these new brands that will combine good quality with low prices, and then export those models and technology to other developing markets like Brazil and Russia. I would expect to see the handful of other major global automakers who haven’t joined the trend yet, including Ford (NYSE: F) and Toyoto (Tokyo: 7203), hop on this new bandwagon soon, turning up the pressure on what looks like an important new growth area for everyone. Of course that will mean a potentially difficult road ahead for Geely, Chery and other domestic names like BYD (HKEx: 1211), that have largely dominated the lower end of China’s car market to date while the foreign names focused on the higher end. Look for that competition to get hotter as these new brands start rolling out more new models, potentially sending many of the Chinese brands into the red.
Bottom line: Nissan and Volkswagen’s new forays into the low-end car space are part of a broader move by foreign automakers, putting growing pressure on domestic nameplates.
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