The latest in the Saab saga has Dong Feng Motor Ltd. Interested in picking up remaining assets from the defunct Swedish automaker. I’m not sure what role GM will have in the final disposition, but this news highlights the latest trend of the big five Chinese auto groups; the development of spin-off local brands from their Sino-foreign partnerships.
After China auto sales grew at a blistering 32% rate for 2010, 2011 sales have pulled back, probably to mid single digit, and perhaps as low as 2-3%; this after averaging better than 20% CAGR over the past decade. Much of this growth has come from the piling in of global automakers as they built JV production with the big 4 locals. With the exception of a couple of legal scuffles (Toyota, BMW, etc) locals and newcomers have played nice, raking in the profits together. One has to wonder if these cozy relationships will continue to grow as locals branch out.
SAIC continues to bolster its #1 position in China, advancing on the basis of its MG technology and Rowe brands. Beijing Auto Group has had an independent brand for more than a year now and has aggressive targets. And Guangzhou Auto launched it’s local Trumpchi brand with an SUV just last November.
I wonder why Dong Feng feels the need for what should be rapidly ageing technology at Saab when it already has announced the launch of a local brand, “Venucia” in cooperation with Nissan? And what exactly does DF mean when they say they are “ready to fight on two fronts – with joint ventures and its own-brand businesses?”
Nevertheless, the latest news reinforces an impending reality in the Chinese market which has fueled BRIC volume, earnings and cash for the likes of GM, VW and most recently Nissan. The days of easy double-digit volume growth and given margins are numbered. Most of you who pay attention have already tempered your expectations for future top-line in China, but have you started to think about the impact of local competition on pricing and market share. I don’t foresee transplants giving up the volume without a fight to the emergence of truly credible local players.
COMMENT: As we watch the last entrants angle to get into China (particularly Fiat and Renault) and try to determine the real long-term prospects for the top players there today, the list of things to keep an eye on continues to grow:
1) Central government regulation to limit sales in congested cities
2) Macro slowdown limiting consumer desire and for such a big-ticket item
3) Less liquidity for retail operations (less so for consumers who tend to pay cash)
4) Price competition among transplants in the midst of massive overcapacity
5) Price competition from emerging local brands
Don’t get me wrong, China should remain a reasonably profitable market, but the heyday of volume and huge margins are gone. Welcome to a maturing market.