AUTOSHOW-China joint venture brands eye growth in inland cities

Mon Dec 20, 2010 5:44am EST

* Honda, GM, Nissan ready for JV brands

* Lower-cost JV brands seen to grow in inland markets

* JV brands seen competing head on with national brands

By Fang Yan and Alison Leung

GUANGZHOU, China, Dec 20 (Reuters) - Japan's Honda Motor and Nissan Motor on Monday took a step closer to launching joint venture brands in China as they aim to tap inland cities to keep up their rapid growth in the world's biggest car market.

The new brands -- combining the foreign makers' technology and China's low-cost advantage -- are meant as a direct challenge to national players that currently dominate in lower-income, smaller cities with their cheaper cars.

Honda and Guangzhou Automobile's joint venture Guangqi Honda introduced the S1 sedan under the Everus brand, called Li Nian in Chinese. The launch follows the lead of General Motors , which in unveiled the Baojun 630 sedan last month, created with partners SAIC Motor Corp and Wuling. [ID:nTOE6BJ02D]

"It is the dream of every Chinese automaker to create self-branded cars," Guangqi Honda Executive Vice President Yao Yiming said at the Guangzhou auto show. The S1 model will go on sale in the first half of 2011 and Guangqi Honda is targeting 30,000-50,000 Everus sales next year.

Nissan displayed a teaser for the Venucia marque to be created with partner Dongfeng Motor Group . Part of the concept model was jutting out of a wall at the Japanese No.3 car maker's booth at the auto show in the southern Chinese city of Guangzhou.

"Joint venture brands will be a platform for foreign automakers to penetrate tier 3, tier 4 and tier 5 cities," said Sheng Ye, associate research director at industry consultancy Ipsos' Greater China region.

"They could be quite an attractive alternative for folks in these areas who tend to be more price-sensitive and would otherwise pick a BYD , Chery or Geely ," he said, referring to three of China's major national brands.

While the heightened competition is expected to put pressure on car prices, it is not yet clear whether it will accelerate consolidation among the dozens of smaller, regional odd automakers, many of which are supported by local governments for jobs and prestige they bring.

The explosive growth in China's car market seen in 2010 has been a godsend for overseas automakers, which dominate the lucrative medium-to-higher-end segment.

But as wealth spreads in the country, smaller inland cities such as Chaozhou and Lanzhou are replacing the affluent coastal regions as the fastest-growing markets for everything from automobiles to flat-screen TVs and digital gadgets.

Car sales surged more than 50 percent in second- and third-tier cities last year compared with 26 percent in Shanghai and 32 percent in Guangzhou, according to data provided by Gasgoo.com, a major Chinese auto parts trading platform.

Terry Johnsson, vice president of GM's China operations, told Reuters last month he would not be surprised to see 60 percent of its business coming from tier 3 and tier 4 cities in the next five years. [ID:nTOE6AL02W]

Toyota Motor , Ford Motor and Hyundai Motor say they have no immediate plans to create a new brand. Neither does Volkswagen (VOWG_p.DE), its China spokesman said, despite a recent local media report that the automaker's tie-up with FAW Group is putting together a concept model.

PRICING KEY

As joint venture brands aim to win over the hearts and wallets of consumers, pricing will be key, balanced with the appeal of foreign-backed technology.

The Baojun 630 is modeled after GM's old Buick Excelle, while Venucia is made on the platform of Nissan's Tiida and Everus on Honda's Fit, Samsung Securities analyst Steve Man said.

Price tags for Baojun 630 and Everus S1 will be announced when they hit the market, both in the first half of 2011.

SAIC-GM-Wuling is planning to have more than 100 dealers ready in smaller cities in time for the Baojun 630's debut. [ID:nTOE6AM04B]

"We recognise that brand building is not going to be an overnight event," said Matthew Tsien, executive vice president at SAIC-GM-Wuling.

"We are a new kid on the block and we've got a lot of hard work to do." (Editing by Ken Wills and Lincoln Feast)

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