After landmark year, China automakers face tougher 2010

SHANGHAI Mon Jan 4, 2010 3:26am EST

SHANGHAI (Reuters) - Chinese automakers are gearing up to tackle tough foreign markets, after a landmark 2009 when they zoomed on to the global stage with several deals and their home market overtook the United States as the world's largest.

Figures due later this week are expected to show China auto sales soared 44 percent to 13.5 million units in 2009, according to the average forecast of five analysts polled by Reuters.

Light vehicle sales, mainly passenger cars, are expected to have topped 12.75 million units, well ahead of a four-decade low of 10.3 million in the United States, according to recent forecasts from J.D. Power's Asia Pacific division.

The huge jump for China came as Beijing rolled out a number of incentives to boost sales as part of its 4 trillion yuan ($586 billion) stimulus package during the global downturn.

The year saw a trio of obscure Chinese names -- Zhejiang Geely Holding Group, Beijing Automotive Industry Holding Co (BAIC) and Sichuan Tengzhong Heavy Industrial, make moves to buy all or parts of storied global brands Volvo, Saab and Hummer.

But now comes the hard part, as Chinese automakers try to turn around their loss-making purchases as they move into unfamiliar foreign markets, even as growth in their overcrowded home market slows.

"This is really an extraordinary year for Chinese automakers, but they still have a long way to go to become a truly global player," said Boni Sa, an analyst with industry consultancy CSM Worldwide.

OUTLOOK SOLID

On the home front, the scale-back of aggressive tax cuts that fueled last year's explosive growth could slow growth at some companies, even as industry watchers stay sanguine on the broader outlook.

"Mercedes-Benz are not covered by the stimulus measures. But our sales are very good this year because market sentiment has been strong," said Klaus Maier, president and CEO of Mercedes-Benz's China operations.

Sales of Mercedes-Benz in China more than trebled in November, with full-year sales poised to beat its target of 65,000 units.

Chen Hong, president of SAIC Motor Corp, China's biggest automaker, said he was "full of confidence" for 2010 due in part to pent-up demand in smaller cities.

Other executives and observers say they expect the market to return to a normal but solid growth rate of 10-15 percent in 2010 given the much larger comparative basis in 2009.

China's explosive growth during the global recession has made it increasingly important for international manufacturers such as General Motors, which recently agreed to cede control of its flagship car venture to partner SAIC.

OWN BRANDS

Chinese companies are looking to use their new leverage to develop their own brands, which they hope soon to export.

SAIC has made initial success of its own-brand cars, and BAIC wants to quickly integrate designs it acquired from Saab late last year into its own cars, with some of those potentially for export.

Investor darling BYD, in which investor Warren Buffett's Berkshire Hathaway holds a 10 percent stake, also aims to export its new e6 electric vehicle to the United States this year.

But the road to global markets could be bumpy, as most Chinese cars are still perceived as cheap and basic.

Even at home, domestic brands accounted for less than a third of cars sold in January-November, and the ratio would be substantially lower without government incentives that favor such cars, analysts said.

The companies are hoping to change that in part by drawing on the technology and sales channels acquired during the recent acquisition spree that has made global headlines.

Zhejiang Geely, parent of Geely Automobile is on the verge of acquiring Ford Motor's Volvo car unit, following BAIC's hastily arranged purchase of three Saab vehicle platforms in December.

With its darkhorse purchase of GM's iconic Hummer brand nearly complete, Tengzhong, an obscure machinery maker unknown even to it domestic peers, will have to figure out what to do with the loss-making company.

"The acquisitions have raised the profile of China Inc. But how to turn around the models and make them competitive at home and overseas is no easy task," Zhang Xin, an analyst with Guotai Junan Securities.

"The challenge for Geely is even bigger as it wants the entire Volvo operations, not just bits and pieces like BAIC. Things could turn out to be very complicated."

(Additional reporting by Kevin Krolicki in DETROIT; Editing by Doug Young and Lincoln Feast)

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