Rivals give Japan carmakers reasons to worry in China

In south of country, Great Wall Motor begins offering luxury while VW goes budget

A motor show that closed here Dec.2 reflected how Chinese and German rivals are becoming more competitive in Japanese automakers' stronghold of south China.

At the show, Japanes automakers were seen trying to make up for declining sales in the world's largest auto market due to the anti-Japan sentiment that erupted in September over a territorial row and continues to simmer.

Toyota Motor Corp. and Nissan Motor Co. tried to stand out by securing larger exhibition spaces than they did last year. But it was Volk-swagen AG, Germany's largest automaker, that attracted the crowds with one of the biggest exhibits.

Toyota allocated about 30% of its exhibition space to environmentally friendly technologies. But "eco-friendly cars are mainly targeted at corporate users," one auto industry analyst said. To attract consumers, "Japanese carmakers need to come up with features that VW does not offer."

At a preview of the motor show, Jochem Heizmann, CEO of VW's Chinese unit, stressed the important role southern China plays in moving the country's economy.

So Heizmann's company is expanding there. VW plans to open a factory in Guangzhou next to a Honda Motor Co. autoparts plant at the beginning of next year, as it tries to chip away at Japanese automakers' dominance in the region.

VW also plans to build a new factory in Changsha, Hunan Province, by 2015. Heizmann said VW will invest 14 billion euros ($18.2 billion) in its Chinese operations by 2016 to raise its production capacity to at least 4 million cars from the current 2 million by 2018.

In addition, VW is trying to broaden its appeal to Chinese drivers by offering cheaper cars. At the Guangzhou show it unveiled a revamped 80,000 yuan ($12,850) version of its Santana sedan, which has been sold in the country since 1983. Earlier models started at 100,000 yuan. The company is trying to reach out to customers who previously did not consider VW offerings, which have been seen as pricey. It is an effort to directly compete with domestic car makers, as well as those from Japan and South Korea.

Military discipline

Japanese automakers now also have an indigenous company to contend with in their Chinese Stronghold-Great Wall Motor Co.

The company is based in Baoding, Hebei Province, about two hours by train from Beijing, near a People's Liberation Army base. In fact, it models its regimented approach to production on PLA discipline.

The company's workers, all in navy-blue uniforms, must walk in single file when they move from place to place in groups of more than three.

Great Wall imposes strict cost controls. For example, the elevators at its 16-story head-quarters only stop on the eighth, 13th and 16th floors; employees on other floors must take the stairs. Lighting in the stairwells and main entrance is switched off to save electricity. The workers have also taken to heart the company's slogan:"Catch up with Japanese and South Korean rivals."

This combination of military-style discipline and aggressive cost-cutting has helped Great Wall make quality cars at reasonable prices. It sold 380,000 vehicles in January-October, up 35% on the year, despite single-digit growth in China's auto market as a whole.

It also raised its share of the domestic market from 1.2% in 2008 to 3.3% in the first nine months of this year, vaulting past BYD Auto Co. to become China's No. 3 automaker-a development that must worry U.S. billionaire investor Warren Buffett, who has placed a big bet on BYD.

In December, Great Wall will replace BYD as a component of Hong Kong's Hang Seng H-share index, composed of big mainland Chinese companies listed on the Hong Kong stock Exchange.

Great Wall's "staggering growth is driven by its own competitive theory, which differs from state-run enterprises (and) could become a threat to us in the future," a senior executive at Toyota's Chinese affiliate said.

Wei Jianjun, chairman of Great Wall, emphasizes innovation. He visits factories every day, in uniform, and presses line workers and engineers to keep improving. The company plans to establish R&D centers in Japan and Europe, aiming to double its R&D manpower to 10,000 by 2015. It recently unveiled the high-end Haval H8 sport utility vehicle. " We will grab cutomers from Japanese car makers," a Great Wall executive vowed.

The SUV will have a Mitsubishi Motors Corp. engine and a luxury interior. The thing is expected to be priced around 200,000 yuan, compared to the Chinese maker's usual price range of 60,000 yuan to 150,000 yuan.

As they chip away, Great Wall and VW are making life in China's south more difficult for Japanese transplants. With no signs of a thaw in the icy diplomatic ties between Tokyo and Beijing, the prospects for Japan's carmakers look grim.

Resource:The Nikkei Weekly