<!–enpproperty 2012-02-27 08:05:26.0Jenny GuIncreasing cross-Straits sales and ‘synergies’Increasing cross-Straits sales and ‘synergies’1161358Motoring2@cndy/enpproperty–>
Carmakers strengthen ties following 2010 agreement
Automakers from both the Chinese mainland and Taiwan have been growing their businesses following the Economic Cooperation Framework Agreement that was signed in 2010.
The agreement reduced tariffs on more than 500 items at the start of 2011, including agricultural, chemical, mechanical and electronic products, as well as auto parts and textiles.
The listed items are called the Early Harvest. Yulon Motor, the largest automaker in Taiwan, set up a joint venture with Dongfeng Motor in Hangzhou at the end of 2010. The venture produces Luxgen brand vehicles owned and developed by Yulon.
Geely and Chery then started to cooperate with Taiwan’s Yulon and Sheng Rong Motor to bring their brands and products to the mainland market.
Even international brands with factories on the mainland or in Taiwan are finding opportunities in the ECFA as they look to create synergies between facilities on both sides of the Straits.
Due to the vastly bigger market on the mainland, Taiwan has the most to gain from the ECFA. The huge mainland market means great demand for Taiwanese products, whether components, and in the future, complete cars.
Lower tariffs mean Taiwan-made parts are more competitive on the mainland, especially in advanced automotive electronics, molds and other sectors. Some Taiwan-made products – GPS, anti-theft systems and airbag controls – offer quality comparable to international component giants.
Taiwanese suppliers can help mainland carmakers reduce their dependence on Japanese makers for some key components. As a result, large suppliers such as Tang Yang and Lio Ho Group have increased investment to set up new plants on the mainland.
In the near future, we can expect Taiwanese exports of completely built vehicles to China. Once that happens, carmakers in Taiwan will get a considerable boost to develop their business.
Currently, they have the capacity to produce 700,000 to 800,000 vehicles a year, but their home market demand only ranges from 200,000 to 300,000 units. The average factory utilization rate is only about 30 percent.
Once tariffs are lowered on completely built vehicles, the mainland could import up to 2.5 times Taiwan’s current exports, which will raise output and increase the average utilization rate to more than 50 percent.
Entering Taiwan
At the same time, mainland manufacturers have been attracted by ECFA investment incentives, bringing their own products to Taiwan.
Although Taiwan’s auto sales are only 2 percent of the mainland market, there is huge potential in the low-end sector.
Geely was the first to enter Taiwan. Its Panda was exported to Taiwan in 2009 and rebadged by Yulon Motor as the Tobe M’car, the cheapest car on sale in Taiwan. Geely’s Emgrand EC7 was the second model to be introduced. It is sold as Tobe M’way.
Chery then followed Geely to Taiwan. Its A1 and A3 models are on sale in cooperation with Sheng Rong Motor.
Recent reports say that both Great Wall and JAC are finding partners in Taiwan.
Mainland carmakers also value the advanced technology and strong RD capability for new energy vehicles in Taiwan.
Yulon has successfully developed an electric vehicle based on Geely’s Panda that will be put into the lease program in Taipei this month. The trial operations should provide rich experience and a benchmark for Geely if it rolls out electric vehicles on the mainland in the future.
As well, mainland carmakers view Taiwan as an entrepot to the global market. Geely once said that Taiwan could become an export base due to overseas marketing experience among companies there.
Even for global automakers that have facilities on both sides of the Straits, the ECFA can create synergies among their facilities, increasing the utilization of existing capacity and cutting costs.
Nissan launched the locally assembled March subcompact in Taiwan at the end of 2011. Yulon Nissan will supply parts to the mainland to assemble the March, so that some capacity could be freed up to produce other hot selling models.
Mazda has also decided to import auto components and parts from the mainland for models to be assembled in Taiwan.
VW is evaluating setting up plants in Taiwan. If the zero-tariff rate is confirmed for assembled vehicles, VW will most likely start local production in Taiwan. From an overall economic view, the ECFA also plays an important role in improving the island’s economy, helping lower unemployment while increasing investment and exports.
With more items on the Early Harvest list in the future, we expect more automakers to benefit from complimentary advantages between the mainland and Taiwan.
The author is a senior analyst with LMC Automotive, who can be reached at JGu@lmc-auto.com
(China Daily 02/27/2012 page18)