May 25, 2017 5:00 am JST

Geely joins China's charge into Asian auto markets

Newcomers challenge Japan's grip on Southeast Asia

HIROSHI KOTANI, Nikkei staff writer

Geely unveils the 01 SUV, part of its new Lynk & Co. brand, at the Shanghai International Automobile Industry Exhibition on April 21. (Photo by Akira Kodaka)

BANGKOK -- Chinese automakers are launching a fresh challenge in Southeast Asia, undeterred by the failure of more established players to gain a solid foothold in markets traditionally dominated by Japanese brands.

About 3.2 million cars were sold in Southeast Asia in 2016, while about 3.8 million were sold in India in the 12 months through March. These markets together sell twice as many cars annually as the largest European market of Germany, and sales are only expected to grow as their populations grow larger and richer.

But there is one factor that makes newcomers think twice before seeking a piece of that pie: Japanese companies control a whopping 90% or so of the Southeast Asian market and about half of the Indian market. Combined with South Korea's Hyundai Motor, their share in India rises to more than 60%.

Zhejiang Geely Holding Group, which made its name globally by acquiring Sweden's Volvo Cars, is undaunted. The Chinese company on Wednesday announced it would take a 49.9% stake in Proton Holdings, effectively rescuing the struggling Malaysian carmaker. "Both parties aim to build Proton into the most competitive brand in Malaysia and a leading brand in Southeast Asia," Geely said in a statement.

This is easier said than done. For the Chinese automaker to compete with Japanese players in Southeast Asia, it must first completely revamp Proton's stale image. Proton is losing ground even at home in Malaysia, where rival Perodua, backed by Toyota Motor subsidiary Daihatsu Motor, has taken a commanding lead in market share.

Accepting defeat

While the ambitious Chinese auto brand makes a daring entry into Southeast Asia, a big old brother makes an opposite move in India. General Motors once sought to make inroads in the growing market under then-chairman and CEO Rick Wagoner. While reintroducing the Chevrolet Spark in New Delhi in April 2007, Wagoner stressed that GM must be a leader in emerging markets in order to be a leader of the auto industry.

The following year, the American automaker nearly quadrupled its annual output capacity in India to over 225,000 units. This was an extremely aggressive decision, given it had just 3% of the local market at the time.

Yet on May 18, a decade after Wagoner's speech, GM abruptly announced that it would stop selling cars in India. "The increased investment originally planned for India would not deliver the returns of other significant global opportunities," Executive Vice President Stefan Jacoby said in a statement. "It would also not help up achieve a leadership position or compelling, long-term profitability in the domestic market." Wagoner's dream was dashed by intense competition from Hyundai and Japan's Suzuki Motor.

Toward a winning strategy

Recent developments in the Asian auto market have highlighted two trends. The first is that GM, one of the world's three largest automakers by unit sales, is narrowing its focus. It is planning to stop producing sedans in Thailand and concentrate instead on SUVs. It is moving more of its resources into North America and China, which account for roughly 70% of its global unit sales.

Volkswagen is also focused on extending its strengths. China's Anhui Jianghuai Automobile announced Tuesday that it received regulatory approval to jointly produce electric vehicles with Volkswagen. This marks the German automaker's third partnership with a Chinese peer, while it has made few, if any, inroads in Southeast Asia.

The other trend is the global expansion of Chinese automakers, which until now had pursued just a handful of acquisitions abroad. SAIC Motor has been producing vehicles under the MG brand in Thailand since 2014 under a partnership with local conglomerate Charoen Pokphand Group. It is planning a new plant that can produce more than 200,000 vehicles a year, with hopes of challenging Japanese automakers in Southeast Asia and Australia. Geely, meanwhile, is looking to save time and effort by buying Proton, which already has an established brand and output capacity.

It remains to be seen whether these Chinese players will succeed or be forced to withdraw like GM. Geely currently sells more than 95% of its cars at home. Its SUVs, priced at just 100,000 yuan ($14,500), are especially popular there, with unit sales jumping 50% to about 766,000 last year. If it can transfer its know-how on making cheaper vehicles to Proton, it has a fair chance of reaching those Southeast Asian customers who cannot afford a Japanese car.

Of course, established players will not cede market share without a fight. Toyota and Daihatsu launched a joint team in January to design vehicles for emerging markets. They will focus mainly on smaller cars aimed at Southeast Asia.

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 198,920.54M
Shares: 3,262.99M

Suzuki Motor Corp.

Japan

Market(Ticker): TKS(7269)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 26,788.79M
Shares: 491.01M
Asia300

Hyundai Motor Co., Ltd.

South Korea

Market(Ticker): KRX(005380)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 32,970.27M
Shares: 285.47M

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