Foreign car execs see mixed threat from China brands

SHANGHAI Tue Apr 21, 2009 5:24am EDT

1 of 5. A model stands next to a MG6 car on display at the Shanghai International Auto show April 21, 2009.

Credit: Reuters/ Nir Elias

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SHANGHAI (Reuters) - Local brands took more than a quarter of China's passenger car market last month but foreign executives were mixed in their assessment of the competitive threat, saying quality standards still fell far short of globally acceptable levels.

Homegrown upstarts such as Chery Automobile, Geely Automobile (0175.HK) and Great Wall Motor (2333.HK) are showcasing new, high-end brands at this week's Shanghai auto show as they aim to grab a slice of the profitable, foreign-dominated segment.

Reaction to the attempt, coming less than a decade after motorization began in earnest in China, ranged from nervousness to downright skepticism from established global players sharing the floor at the show, which opens to the public on Wednesday.

"I don't find it surprising at all that the Chinese are looking to go into the (high-end) market," BMW AG's (BMWG.DE) global sales chief, Ian Robertson, said at the sidelines of the auto show this week.

"It's a natural progression, and the advantage that Chinese manufacturers have with the large local market is big. I never underestimate competition," he said.

An official at Daimler AG (DAIGn.DE), which along with BMW dominates the global luxury market agreed, although he said success would not be imminent.

"The question is how long will it take for Chinese brands to compete with carmakers from Europe, Japan, and the United States. This will take time," Ulrich Walker, head of Daimler Northeast Asia operations, said.

"The big question is how long, but I'm sure that in future the local brands will also be competitive enough to go abroad and to export their products to our parts of the world."

Nissan Motor Co (7201.T) Senior Vice President Andy Palmer said he had seen a vast improvement in the craftsmanship of Chinese cars from seven years ago when the market -- now the world's biggest -- was just starting to emerge.

A sizeable distance still remained, but he warned against writing off the scope for further improvement.

"Thirty years ago, the image of Japanese cars was that they rusted," he said. "So that's how much things can change."

Beijing Hyundai Motor President Noh Jae Man said the threat was already at hand.

"They are very competitive, and expanding rapidly," he said, pointing to the 30 percent sales jumps at Chery and Geely in the first quarter. "Judging from their performance, they will grow in the future."

NOT SO FAST

Others were not so sure.

Competing in the local market was one thing, but acceptance would not be forthcoming for high-end Chinese cars abroad, Nick Reilly, president of General Motors Corp's (GM.N) Asia Pacific division said.

"They just don't have that brand image yet," he said. "It would be much more sensible for them to try to go into the lower end or the middle, and then grow from there to the upper end."

Indeed, Shanghai's vast auto show was sprinkled with what Chinese cars are most associated with: copy-cat versions of foreign vehicles.

FAW Haima, which previously had partnered Mazda Motor Corp (7261.T) to receive technological help, is unveiling the Haima 2, a look-alike version of the Mazda2 subcompact. It already sells the Haima 3, which resembles the popular Mazda3 compact, without the Japanese automaker's consent.

BYD Auto, the car arm of battery giant BYD Co (1211.HK), is displaying its M6 multi-purpose vehicle, which has an uncanny resemblance to Toyota Motor's (7203.T) Estima/Previa.

One executive said Chinese brands' success so far was because more than 80 percent of car sales are to first-time buyers who have no reference point for what to expect.

"Once they see how easily some of these cars can break down, they may choose to pay a little extra for a more reliable car next time," the Japanese executive said, who requested anonymity due to the sensitive nature of his comments.

That thinking should take root particularly once a used car market develops in China, and residual value begins to play a role in purchasing decisions, he said.

Underscoring how far Chinese carmakers have to go, even Brilliance Auto (1114.HK), which bills itself as a maker of premium cars, scored zero out of five in a recent German crash test with its BS4 sedan.

Still, Michael Dunne, a China expert at consultancy J.D. Power Asia Pacific, said writing off Chinese carmakers' capacity to improve would be a mistake.

"Five years ago, they were not even on the radar. No one had even heard of them," he said.

"Today, as a group, they have 25 percent market share. So don't underestimate the ambition or the ability of Chinese auto makers to come up quickly."

(Additional reporting by Fang Yan and Royston Chan; Editing by Lincoln Feast)

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