HANGHAI- Under pressure from China's central government, foreign automakers have introduced electric vehicles and
created new brands with their Chinese partners.
Now, foreign automakers have set out to do something new: build vehicles for their Chinese partners. And this time they
are doing it for their own good as well as for the benefit of their local partners.
In March, a Changan badged microcar rolled off the production line of Suzuki Motor Corp.'s joint venture with Chongqing
Changan Automobile Co.
Earlier in the month, PSA Peugeot Citroen assembled the first batch of midsize sedans for partner Dongfeng Motor Corp.'s
Changan and Dongfeng are young players in China's car industry. By outsourcing vehicle production, they will benefit from
the quality control of their partners, Suzuki and PSA.
The two state owned Chinese automakers haven't missed the opportunity to tout the benefits of sharing production lines with
their foreign partners.
But it is equally beneficial for Suzuki and PSA to produce these vehicles. Perhaps most important, their joint ventures will
operate their assembly plants closer to full capacity.
Take Chongqing Changan Suzuki Automobile Co. Last year its two plants, which can build as many as 350,000 vehicles
a year, sold fewer than 170,000 vehicles. By producing vehicles for Changan, these plants can put some of that unused
capacity to work.
Joint production also will allow automakers to jointly purchase components. For some companies, this could generate big
For example, up to 90 percent of the components in Dongfeng's Aeolus L60 midsize car are sourced from vendors that
also supply PSA. This will strengthen the joint venture's bargaining power when PSA and Dongfeng negotiate prices with
Following the examples of PSA and Suzuki, other foreign automakers with plants that operate below capacity are likely to
assemble vehicles for their Chinese partners.
One candidate is the Changan PSA joint venture, which builds the Citroen DS product line. With annual production capacity
of 200,000 vehicles,the partnership sold only 26,700 cars last year.
Another candidate is the partnership between Renault and Dongfeng. That joint venture is scheduled to start production
in the first half of 2016 with annual capacity of 150,000 vehicles.
But demand for Renault is low in China. Last year, fewer than 33,500 imported Renaults were sold in China.
The days are gone when China's auto market grew by double digits every year. In the first two months of 2015, China's
passenger- vehicle sales rose only 8.7 percent.
China's economy is losing steam. Its growth rate is expected to drop to 7 percent this year from 7.4 percent in 2014,
according to a prediction last month by Premier Li Keqiang.
With the auto sales settling into a slower growth rate, I wouldn't be surprised if other global automakers soak up spare
capacity by producing vehicles for their Chinese partners.