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Local brands looking overseas

Fierce market fuels export hopes, but the gold is at home 

Car exports from China rose more than 40 percent last year and were an excellent antidote for the slowing market for domestic carmakers

Some local firms are showing incredibly high levels of reliance on exports. Lifan, for example, exported 67,000 passenger vehicles, 43 percent of its total sales

Chinese automakers currently focus on markets in South America, the Middle East, Russia and Eastern Europe

Some have tried to tap mature markets

MG, originally a British brand now owned by SAIC, is an example. But it only managed to sell 782 cars in the UK in 2012. 

Yet many local brands have announced ambitious strategies for overseas development, even for mature markets including countries in Western Europe

The new Chinese brand Qoros has scheduled plans to launch its products in Europe and China simultaneously, catching the eye of journalists both at home and abroad

In 2012, Geely announced plans to enter Western European markets including Britain and Italy. But after failing crash tests in 2005, early attempts by Chinese brands in the EU market proved to be nothing more than wild goose chases

Since then, Chinese carmakers have made great efforts to improve their safety standards

In 2011, both SAIC and Geely won high ratings in crash tests by the European safety agency, leading to more people to believe that Chinese brands have now eased some of the barriers to entering the EU market

Real barrier 

But are safety standards the main barrier

The real bottleneck has turned out to be the sluggish economy in Europe

The auto markets in Western Europe enjoyed a 10-year golden era from 1998 to 2007 when annual sales reached a historical peak of 150 million

Although the financial crisis in 1993 caused a 36 percent decline in the market, it took only five years to recover, and soon surpassed previous levels

However, the impact of the financial crisis in 2008 has proven more profound

Western European countries launched massive incentive plans to encourage new car sales, which stabilized the market temporarily in 2009. 

But car sales shortly after declined dramatically by more than 40 percent due to a stagnant market and Europe's sovereign debt crisis

The market is not expected to recover to its 1998 level until at least 2020. 

Italy seems to be the first stop for many Chinese brands, but the market is also slumping

Following declines of 11 and 12 percent in 2011 and 2012, the car market is expected to shrink a further 9 percent in this year

Annual sales this year are likely to drop to less than 1.3 million units, from 2.5 million units in 2007. 

In fact, all Western European countries, with the exception of the UK, will experience significant downturns again in 2013. 

Redundant capacity 

On the other hand, the European car industry is facing tremendous redundant capacity

According to data from the first quarter in 2013, nearly 40 percent of production capacity in Europe remains idle

With a shrinking market and hungry automobile giants in Europe, it is obvious a tough battle for China's indigenous firms to grab a slice of the cake in this sluggish Western European market

In comparison to the gloomy market in the EU, China's passenger vehicle market is still booming with a nearly 20 percent increase in the first quarter

By 2020, we expect new car sales in China to hit 25 million units, 11 million more than in 2012. 

So it is unrealistic for indigenous firms to rely on exports to relieve their difficult positions at home

It would appear that after all, the next gold mine is still in the East, not the West

The writer is the director of Asia Pacific Forecasting at LMC Automotive, who can be contacted through jzeng@lmc-auto.com 


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