Auto Industry

Chery picking

Japan’s Subaru looks to find local partner to expand China sales

Peering under Subaru’s hood

If awards were handed out for perseverance, Chery Automobile would be a Hall-of-Famer. Denied a licence to make cars when it first came into existence 15 years ago, Chery secured an agreement to make engines instead. Then it badgered Beijing to relent on the vehicle ban, overturning it within three years and making cars.

This year Chery managed to get the green light for another high profile project, despite opposition from economic planner, the NDRC (National Development and Reform Commission). The powerful body has been trying to rein in additional carmaking production by discouraging new foreign entrants from joint venturing with local auto firms (it fears there is already overcapacity in the industry).

Unperturbed, Chery successfully pushed for a new venture with Jaguar Land Rover in Changshu (see WiC171) and now it seems to be trying for a tie-up with the Japanese automaker Subaru. That’s after a similar proposal for a project with Subaru in Dalian was blocked earlier this year.

The announcement of the latest plan came inadvertently, on word that the authorities in Chery’s hometown of Wuhu are conducting an environmental impact study for the proposed plant, which would produce 200,000 units a year.

The earlier bid was rejected when the Chinese authorities wouldn’t budge on ownership rules limiting foreign firms to two joint ventures in the sector (Toyota holds a 16.5% stake in Fuji Heavy, Subaru’s parent, but already has local JVs with FAW and Guangzhou Auto). That left Fuji Heavy as the only major Japanese auto firm not manufacturing in China. Instead it sells imported vehicles, which are subject to higher duties. As a result its sales trailed rivals at just 57,000 cars last year, some way behind the top performing Japanese manufacturer in China, Nissan with 1.25 million units.

After the failure in Dalian, Fuji Heavy executives said it would refocus its efforts on production in other markets. But according to the Economic Observer, Chery has reapplied for approvals, this time in Wuhu, where it may be more confident of getting fuller backing. Insiders also suggest that the central government may look more favourably on investment in Anhui province, one of China’s poorest, than it did in Dalian (see WiC169 for more on this affluent city).

The irony is that Fuji Heavy’s lack of manufacturing presence in China is currently being viewed as a major positive by investors, as sales of Japanese cars continue to be hit by the diplomatic row over disputed islands in the East China Sea.

With consumers boycotting their brands, the Japanese carmakers have all trimmed their sales forecasts, cutting back a combined 650,000 units on the estimates made in the spring (in an attempt to deflect some of the sour mood Toyota has even rebranded its Chinese operation as ‘China Toyota’). But while sales of Subaru brands are also down, Fuji Heavy is far less affected in absolute terms. The company’s stock is actually one of the best performers on the Nikkei index this year.

“Their misfortune turned into a stroke of good luck after the anti-Japan protests,” IHS Automotive analyst Masatoshi Nishimoto told Bloomberg, before adding that in the longer term, Subaru will still have to find a way of boosting sales to Chinese buyers.

The company’s president Yoshinaga Yasuyuki agrees: “China is the largest vehicle market in the world and will continue to grow. When we consider local production, besides the US, China is the place. This plan hasn’t changed.” With Chery on board as a potential partner, perhaps Yoshinaga will finally make the breakthrough. But he’ll have to be patient, too. No final announcement on the Wuhu bid is expected from regulators until next year.


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