Selling cars in China is a complicated ordeal for the foreign automakers that dominate the local market – and it may become even more annoying.
If you’re a foreign manufacturer looking to sell cars in China, it’s almost mandatory to partner with one of China’s budding auto manufacturers – in many cases, state-owned companies – by going in 50/50 with a local production facility. If not, the government imposes heavy tariffs so as to make imported cars uncompetitive.
The intent is clear. By working with some of the world’s top automakers, the Chinese halves will eventually learn how to build good cars. The thing is, the program has been in effect for decades, and the learning is apparently not happening. In many cases, knockoffs of popular foreign cars litter the local market, but thanks to internationalintellectual-property laws, selling the copycat products abroad is impossible (it’s technically illegal in China, too, butyeah).
Now, the Chinese government thinks it’s found a convenient way around the pesky necessity for actual innovation. By pushing the creation of sub-brands underneath the existing auto-partnership umbrellas, the Chinese can in turn create ownership of intellectual property. This is because the sub-brands are 100 percent Chinese.
Foreign automakers are not terribly excited about this idea — not that they were jumping out of their seats to get into bed with Chinese automakers in the first place, but we digress. Being as how China holds all the cards and foreign companies like making money in a massive, exploding market — roughly 19.3 million light-duty vehicles sold in 2012 — they’re inclined to comply.
The only trick foreign companies have up their sleeves is to let the new sub-brands use discontinued models. You’re not going to give away intellectual property rights on your latest and greatest, are you?
There’s a lot of doubt about whether these sub-brands will sell. For one, these sub-branded cars aren’t a great deal. According to Chinese auto blogger Tycho de Feyter, “The only one on the market right now is the Everus S1. It costs 69,800 yuan [$11,225]; a new [Honda] Fit costs only 91,300 yuan [$14,683].” (The Guangzhou-Honda Everus S1 is an old Honda City.) He goes on to argue that, price notwithstanding, Chinese dealers don’t know the product and Chinese consumers don’t trust the new brands to actually stick around to make good on service and warranty claims.
But profit is hardly the only reason that foreign manufacturers should – and do – prefer to comply with the sub-brand order. China Car Times reported last Thursday that partners BMW and Brilliance are set to create their first sub-brand, to allegedly be named Zhi Nuo (loosely translating as “The Promise”). In promising the Promise, BMW is hoping to grease the proverbial wheels, gaining permission to build another factory in conjunction with Brilliance in Shenyang’s Tie Xi district. And that, theoretically, will be a big source of profit.
The sub-brand’s first creation is said to be based on either the previous-generation 3-Series or today’s X1; we have a very hard time believing the latter claim. China Car Times offered another educated guess that “… now Shanghai Auto Show is expected to be the launch platform for the new brand and its goals.”
So, we’ll sit back with hopes held high.
[Sources: China Car Times, The Truth About Cars]
