China's SAIC set for exports

China's largest passenger carmaker, Shanghai Auto (SAIC), is more than a little keen to make its marque internationally. The firm has announced plans to begin exports to Europe next year of cars based on designs from MG Rover, the failed British carmaker.

With this in mind, SAIC unveiled its own-brand family saloon this week at a ceremony in China's biggest city and said it planned to make 300,000 cars and trucks a year under their own brand by 2010.

Well, almost unveiled it. The car was shown in dark shadow on a projector screen, as it is still under development and will not be released until June, but it looks remarkably like the Rover 75.

And any similarity is no coincidence - SAIC bought the plans for the luxury saloon and the intellectual property rights to build them from MG Rover, before the British carmaker went bankrupt a year ago and SAIC has spent €400 million on its SAIC Motor Manufacturing unit to come up with self-developed cars.

David Lindley, the British chief engineer of the new unit, who used to work for Longbridge-based Rover and BMW, gave the briefest glimpse of the new car in his presentation in Shanghai and said it was an "improved" version of the Rover 75.

SAIC is partner with General Motors and Volkswagen in China, which is the world's third-largest vehicle market. The company produces hundreds of thousands of Passats and Santanas under the VW brand, and Chevys and Buicks with GM badges, every year.

The new four-door saloon will carry its own brand and will compete directly with GM and VW, when it starts exporting to Europe next year and to the US at a later stage.

Wang Xiaoqiu, general manager of SAIC Motor Manufacturing, said the group would spend an extra €1 billion to add five production lines building 30 new models by 2010, which would more than double output to 300,000 vehicles and 400,000 engines by then. "Our target is to sell over 200,000 own-brand cars by 2010, with 45,000 of that shipped to overseas markets, including Europe," he said.

In Europe, Spain and the UK are among the most likely export destinations in the near term, but sales to South America are also being considered, company representatives said.

Shanghai Automotive Industry Corporation, to give its full title, began life as a classic Communist automotive factory after the Revolution in 1949, with the emphasis on tractors and buses, but it stopped making its own-brand cars back in the 1980s when it signed a joint venture with Volkswagen, and in 1997 it signed a partnership with GM.

And their production plans are certainly ambitious - SAIC has targeted vehicle sales, which includes trucks and buses as well as cars, of two million by 2010, of which 600,000 would be developed on its own. To achieve this, SAIC has set up a unit called SAIC Motor Manufacturing, which will develop the new car and use technology bought from MG Rover to build them.

SAIC Motor lost out to its Chinese rival Nanjing Automobile Group in a hard-fought bidding war for the MG Rover group. After the dust settled, SAIC was left with the intellectual property rights to two Rover models, the 25 and 75. BMW still owns the Rover brand, but SAIC spokesman Hawk Huang said they were talking to BMW about buying the brand.

And confusion still reigns over who owns what exactly. "We don't know if Nanjing Auto breaches any of our intellectual property rights before the first car is made, but if we find there is a problem, we will pursue them according to the law," said Huang.

There had been talk of a three-way co-operation between Shanghai Auto, Nanjing Auto and MG Rover before the British carmaker went bankrupt, but those stopped after Nanjing Auto won the MG rights.

It's a big announcement in terms of overall trends in the growing Chinese market. The big carmakers have long feared the day when Chinese carmakers get their act together and start producing a truly competitive product.

Most Chinese consumers would prefer to buy a foreign car, particularly in the luxury saloon category, but a decent locally produced car could shift units, and as the quality improves, so too does the share of domestic brands - last year over a quarter of passenger cars sold in China were Chinese brands.

This in turn could eat into valuable earnings for foreign companies in China, which has become ever more important to the bottom-line for companies like GM and VW. GM's profits of €270 million from their Chinese joint venture last year were particularly welcome in a year when it was haemorrhaging revenues in developed markets.

The Chinese government wants to use the big brands like SAIC, FAW and Dongfeng to build a national car industry.

The government has also been pushing these big firms to build on their co-operations with foreign outfits like Ford, Suzuki and Kia to start producing own-brand cars.

The foreign companies need to bite their tongue about SAIC's plans, as they still need the foothold in the lucrative Chinese market and are required by law to have local partners if they want to produce here.

And Chinese domestic carmakers are doing very nicely out of their big stakes in the foreign firms too. Shortly before the launch of SAIC's new "Rover", VW introduced the Sagitar, which European drivers will know as the Jetta. It's VW's first new model this year, which the Wolfsburg carmaker hopes will help it to regain sales in the Chinese market, which dipped below 20 per cent for the first time in 20 years last year.

First-quarter sales for VW were promising, surging 40 per cent and putting it on course to hold its sales lead over GM, Toyota and Ford. VW has offered to help SAIC in any way it can to develop its own car.

BMW is holding talks with many potential buyers of the Rover brand name - including two Chinese auto manufacturers - but has not concluded any deal yet, it said yesterday. China's SAIC Motor Corp and Nanjing Auto are both interested in getting the rights to the Rover name that reverted to BMW with the insolvency of British carmaker MG Rover a year ago. "We are still in discussions with several parties, two of them being SAIC and Nanjing, but no agreement has been reached," a BMW spokesman said.

SAIC said this week it would spend another $1.25 billion to fuel its ambition of selling its as yet unnamed own brand of cars globally, putting to use technology gleaned from its foreign partners, and from MG Rover.

Moving beyond a joint venture with foreign partners, it aims to sell more than 200,000 of its own-brand cars by 2010, with 45,000 of them shipped to overseas markets, including Europe. SAIC last year lost out to Nanjing Automobile in the bidding process for MG Rover, but owns the intellectual property rights to build the Rover 25 small car and Rover 75 saloon under an earlier deal.

Nanjing Auto plans to roll out its first locally-made MG75 sedans in the first half of 2007 using acquired technology, state media said last month. - Reuters