Chinese carmakers ready to go global

When Chinese automaker Geely acquired the iconic Swedish brand Volvo—through its parent company Ford—for about $1.8 billion in 2010, it became the first successful purchase of a high-end global brand by a private Chinese car manufacturer.

The deal offered great opportunities for both Volvo and Geely: The former wanted to tap into the world’s largest automotive market, while the latter simply wanted to go global.

In a similar development, state-owned Dongfeng Motor last year became one of Peugeot’s largest shareholders, contributing $1.1 billion for a stake in the French automaker, also regarded as one of the world’s oldest carmakers.

This announcement came days later after Chinese auto parts producer Wanxiang Group rescued California-based  electric car pioneer Fisker Automotive from bankruptcy.

Then early this year, a unit of China’s FAW inked a joint venture with Michigan-based EcoMotors, a start-up backed by Microsoft founder Bill Gates and venture capitalist Vinod Khosla, to manufacture the latter’s environmentally friendly engines. The FAW subsidiary picked up the entire bill for the Chinese facility, an investment of more than $200 million.

‘Going out policy’
Since China initiated “zou chu qu” or “going out policy” in 1999, Chinese companies, especially those in the automotive business, were encouraged to expand into international markets in order to catch up with their international rivals and to become a major global player.

Generally lacking technology, experience and brand power, Chinese automakers have faced hurdles even in their local market, where Chinese consumers think homegrown cars are of poor quality. As a result, foreign brands like Volkswagen, Buick and Chevrolet of General Motor, and Ford command a sizable amount of the market (even China’s luxury market is dominated by VW’s Audi, BMW and Daimler’s Mercedes-Benz).

Quite the opposite, Chinese auto brands only get sold in markets, particularly in developing countries, where buyers care more about price than anything else.

Long-term joint ventures

To solve this challenge, the Chinese government tried to mandate overseas auto players to enter into long-term joint ventures if they want to manufacture locally.

Since most of their local partners have links with large state-owned auto groups, they hope to enable and encourage the transfer of technology and management know-how to their Chinese counterparts.

It remains to be seen if these Chinese companies can capitalize on their purchases and partnerships to turn themselves into better auto companies, or if they are capable of helping to turn around their troubled new acquisitions.

Here in the Philippines, a number of these Chinese brands have been trying to draw our attention for years. But quality issues have been the biggest road block along with tweaking the cars to meet stricter government safety and emissions regulations.

Brand like BYD, Chery, Geely, Brilliance Auto, Hafei, Lifan, Great Wall Motors, and Jiangling have started to dish out better models that hope to erase past impressions of poor quality, difficult aftersales service, and limited parts supply.

Chinese automakers have also started partnering with large global auto parts companies that could supply them with parts that meet American and European regulatory standards.

Chinese automakers believe they have learned from the harsh lessons, and promise that  future models will be built to global standards.