For over two decades the rule of the game for foreign investors in vehicle assembly in
Such has been the non-negotiable requirement on foreign investment in vehicle assembly in
There is consensus in automotive circles, however, that enterprise control does not really depend on the size of a company’s equity shareholding or the number of seats on the board of directors. Real control of an automobile assembly business lies in the ownership of the product, the brand and the technology.
The limit on equity shareholding for a vehicle joint venture has been like a commercial game equivalent to the “Emperor’s New Clothes.” Foreign investors are well aware that the equity share requirement is a political decision and is unlikely to change over the next few years. They have therefore chosen not to directly lobby the government for change. Instead they have been concentrating on building up their brands and market shares, quite successfully, within the confines of a joint venture structure. The experience of the past two decades shows that
To joint venture multinational automakers in
Like Honda, which established its own alternative to the joint venture in
For the past eight years Nanjing-Fiat has been operating poorly and at a loss in
The idea is to have a win-win situation for all three parties. Fiat will be able to have Chery contract manufacture its cars for Chinese consumers at Nanjing-Fiat, hoping to terminate its unpleasant relationship with Nanjing Auto and relieve it of its financial burden. Nanjing Auto would also be happy to alleviate its financial pressure from the joint venture and concentrate on its new MG project. Chery would be able to move into an existing assembly facility in neighbouring Nanjing to rapidly expand capacity with minimum investment.
Already Chery is an engine supplier to Fiat. In an agreement signed late last year, Chery went into a deal to supply Fiat with 100,000 of its in-house developed 1.6L and 1.8L ACTECO engines.
Earlier this year, a delegation of top Fiat executives led by Fiat Group CEO Sergio Marchionne and an NAC delegation led by chairman Wang Haoliang visited Chery to smooth out the tripartite deal.
Chery seems to be the only independent Chinese carmaker capable of contract manufacturing. Last year DaimlerChrysler’s Chrysler group signed a memorandum of understanding for Chery to contract manufacture small cars in China to be sold as Chryslers in the U.S. and Europe. Although progress has now been delayed due to DaimlerChrysler’s decision to restructure its U.S. subsidiary, such a deal will be crucial to help Chrysler survive its current difficulties.
Multinational automakers are exploring non-joint venture forms of cooperation in China. They have the choice of either purchasing cars developed by independent Chinese carmakers and then selling them under their brand overseas or licensing the production of their own brand models for sale in China.
For decision-makers in China, the new forms of cooperation with multinational automakers have not been clearly specified in the country’s auto industry policies. We do not know yet whether such alternative forms of cooperation will still have to go through central government approval, but we do know that they should be beneficial for the healthy development of the country’s auto industry.
Although at the time of writing, Fiat China and Chery Automobile announced in a joint-statement that the two sides: “have not, and do not, plan to discuss the sale of Fiat’s shareholding in Nanjing-Fiat,” the statement does say: “the two companies are evaluating possible ways to cooperate in China’s passenger vehicle sector, which is crucial for both parties.”
In the wave of globalization it is normal and logical for companies from different countries to utilize their complimentary resources to cooperate in manufacturing. The Chinese automobile industry is no longer what it was in the old days when it lacked capital, products, technology and management. Joint venture manufacturing today may not be the only choice for multinational and Chinese automakers.