Daimler Chrysler To Make Sedans in China
Daimler Chrysler AG has announced that it plans to manufacture
C-class and E-class sedans in a joint venture with Beijing
Automotive Industry Holding Co. (BAIC) beginning in 2005.
In an announcement, Daimler chairman Juergen Schremp
announced that China was the single most important market
to develop. The deal is valued at 1 billion euros, or
US$1.1 billion, which will be spent on upgrading the facilities
of Beijing Jeep Corp. Daimler Chrysler also plans to make
Mercedes trucks, heavy duty engines and other components
for the commercial vehicle market.
The announcement puts Daimler in a head-to-head contest
with BMW
in China. BMW's China partner is Brilliance China
Automotive Holdings. The Mercedes Benz and BMW brands
are very popular with newly affluent Chinese, who widely
regard their cars as important status symbols. Daimler
Chrysler sold 8,000 Mercedes cars in 2002, and expected
to sell more than 10,000 this year. About 70 percent of
these were the high-end S-class sedans.
Many observers, including Chinese economists, believe
that the Chinese auto market is overheating.
Demand has continued to grow at a
blistering pace and major international makers such
as GM,
Toyota,
Visteon,
Volvo
and Volkswagen
have all stepped up plans to increase production in
China.
China's auto industry is frequently cited as an inefficient
industry in need of restructuring because there are too
many local car makers. The Chinese central government
has repeatedly tried to restructure the industry by shutting
down the smaller players, but the respective provincial
governments continue to patronize local firms by offering
them loans.
Most observers believe that the China market is headed
for a price war because of possible over-capacity and
overly optimistic consumer sales figures in China. China
Business Strategy holds a different opinion,
believing that this marks a major structural change for
the world auto industry, and that all of the manufacturers
are planning to export from China after fulfilling domestic
demand. This means that as their quality and manufacturing
ramps up in the China market, they will cut back on their
auto manufacturing in other countries.
So far, the only manufacturer exporting from China is
Honda, which exports the Accord to other Asia markets.
Honda has reported that the quality of its Accords manufactured
in Guangzhou are equal to Japanese Accords, and will step
up exports from China to all other markets.
Honda has a reputation for being a trailblazer, and China
Business Strategy believes that this is the path
the other makers will follow.
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