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Foreign auto brands scramble for low-end niche

Date:2008-05-08

Facing a prosperous auto market, which is expected to reach 10 million vehicles in sales volume and expanding more than 20 percent every year, no sharp-nosed auto giant would want to ignore China. Most have connected with one or more Chinese automakers to produce medium- and high-end models locally.

However, now that global automakers are trying to cater to medium- and low-end niches, traditionally entrenched by independent Chinese auto manufacturers, the traditional balance is doomed to end.

At the recent Beijing Auto Show, domestic automakers like Geely, Chery, and BYD all did good jobs of showcasing their latest technological development and new marques, and new energy models in particular.

"This is the best show ever for homegrown Chinese automakers, suggesting they are making substantial progress in research and development and marketing," said Li Chunbo, analyst at Citic Securities.

But they "performed not well in first quarter sales," indicated Chinese renowned independent auto analyst Jia Xinguang. "They are confronted an arduous future."

Statistics from the China Association of Automobile Manufacturers showed 62 passenger cars producers' sales in China surged an average of 20.41 percent year on year in the first three months this year, but no independent Chinese makers grew faster than the average.

BYD's first quarter sales increased 14.28 percent, Chery merely rose 5.64 percent, and Brilliance Jinbei and Lifan Motor even slumped by 31.82 and 11.54 percent respectively. In contrast, joint ventures FAW Toyota, FAW-Volkswagen and Shanghai Volkswagen enjoyed a robust sales surge of 74.42, 48.77 and 33.89 percent respectively during the same period.

Having experienced two years of roaring growth, many domestic automakers announced strategic shifts, either to plant production facilities overseas or to efforts in the medium- and high-end market. One reason is that the small car market is shrinking, and another more important one is those foreign-invested magnates have started to make inroads into this market section.

No matter the new Vios from FAW Toyota, the Mazda 2 from Changan Ford Mazda, the new Aveo from Shanghai General Motors, or the upcoming Yaris from Guangzhou Toyota, all have earned the favor of Chinese customers.

"They are crashing Chinese independent brands' market dominance," said Li. "Domestic automakers badly need to restyle their product lines."

"The Vios and the Yaris will soon snap up a large stake and dominate the small niche," claimed Jia. "The only difference is how much is left for incompetent Chinese brands."

Although the country's environmental friendly policies spell out a promising future for the small car market, "Chinese homegrown automakers must vary their production lines and improve their brand values," Li pointed out.

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