Car makers go local to tap China growth

By Fang Yan and Helen Massy-Beresford

SHANGHAI (Reuters) - Global auto makers and their Chinese partners are rolling out dedicated local brands and targeting buyers in smaller towns and cities as growth in the world's largest auto market slows from its breakneck pace.

That figure suggests a slowing growth rate because it is lower than the 32.4 percent rate in 2010, in which China's sales totaled 18.1 million units. Car sales alone rose a third last year to 13.8 million units.

Those sales secured the country's position as the world's biggest auto market for the second consecutive year.

But while the official growth rate may slow, the outlook is positive enough for Chinese car makers and their overseas partners to make substantial investments on the mainland.

GM China chief Kevin Wale said GM planned to introduce around 60 new and upgraded models in China over the next five years, around 12 of them being Buicks and 15 Chevrolets.

"We have set some aggressive goals with our five-year plan," Wale said in statement. "We are confident that we will achieve every one of our goals."

Susan Docherty, GM's international operations vice president of sales, said GM's Chevrolet brands sold 1.1 million vehicles globally in the first quarter, up 15 percent from a year earlier.

"We expect the Chevrolet sales to more than double over the next five years," Docherty said of Chevrolet international vehicle sales, which include China.

GM said late last year it expects exports of its China-made Chevrolet Sail to more than quadruple this year due to rising demand for low-cost quality vehicles in emerging markets.

GM is also showing its Baojun 630 sedan, a midsize vehicle developed locally using GM technology. The car is the first of GM's Baojun brand that will be available nationwide.

Officials at PSA Peugeot Citroen <PEUP.PA> say they too are convinced China's car market will continue to grow by about 10 percent a year for several years.

In a move that illustrates the importance of China, Citroen unveiled its new DS5 premium five-seater car on Monday.

"Ten percent growth will last for several years," said Philippe Varin, Peugeot's CEO.

Gregoire Olivier, chief executive of PSA's Asia operations, said that about 5 percent of Chinese people own a car compared with about 55 percent of Europeans, a disparity he said showed how much room there is for the Chinese market to grow.

Car ownership is not evenly spread throughout the country, with Beijing and Shanghai having to impose limits on car registrations even as smaller towns and cities with lower car ownership numbers emerge and car makers rush in to scoop up sales.

"Smaller towns are getting into the market and car makers are starting to be able to set up there," said Varin.

PSA will produce DS5s, the latest model in its DS range, in China with its new partner Changan Automobile, China's No.4 auto maker.

INDIGENOUS BRANDS

One way auto makers, foreign and domestic, plan to increase sales in China is by teaming up to build "indigenous brands," and Chinese car makers themselves are trying to grow their own brands both at home and abroad.

Chongqing Changan Automobile Co Ltd <000625.SZ>, which has a three-way partnership with Ford Motor Co <F.N> and Mazda Motor Corp <7261.T> in China, said the joint venture is considering rolling out its own brand.

Changan makes and sells Ford models including the Focus, Fiesta and Mondeo in China under its partnership with Ford and Mazda. It also sells the Mazda 2 and Mazda 3.

Ford itself is planning to increase its presence in China. The U.S. car maker said last week that it would introduce 15 new vehicles, double its dealerships from 340 and add 1,200 new jobs in China by 2015 as it seeks to catch up with rivals.

The step is the latest round of initiatives that the U.S. auto giant has taken in China since Asia and Africa chief Joe Hinrichs took the China chief executive role last October.

The first of the 15 new models, the Focus, will go into production in 2012 at a planned $490 million factory in Chongqing with an initial capacity of 150,000 units.

Peugeot too will launch what it calls a dedicated brand. As required by Chinese legislation, PSA and Changan will launch the brand starting with commercial vehicles and passenger vehicles following two to three years later.

Olivier said the new brand could be launched within a year.

"China is objective No.1 for the brand, but we can't rule out exporting it," he added.

(Additional reporting by Ben Klayman; Editing by Matt Driskill)