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Definition of independent vehicle brand to have major market impact

BMW’s recent appearance on China’s 2009-2010 government procurement list has created a stir not only among automotive circles but also the general public.

One local analyst aptly points out that the popular sentiment reflects first BMW’s unfortunate yet notorious symbol as the luxury sedan for China’s newly rich and secondly, probably more important, strong discontent over the unscrupulous government expenditures on official sedans.

The Procurement Center of Central Government Agencies hastened to release a notice on its website on June 15 saying that the Center would further raise the ratio of independent vehicle brands in its procurement “in accordance with the State Council’s Automotive Industry Readjustment and Revitalization Plan.”

Three days later, a responsible official at the Center told People’s Daily that it “currently has no plans in purchasing either BMWs made by BMW-Brilliance or Mercedes-Benz made by Beijing Benz-DaimlerChrysler” despite the fact that the two luxury German cars are both listed in the procurement list.

Earlier, the National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology (MIIT) and seven other central government departments jointly released a notice emphasizing that the ¥4 trillion ($588 billion) economic stimulus package represents “government investment projects and government spending. The government should give priority to home made products in its procurement.” China’s Government Procurement Law of 2003 stipulates that “government procurement should choose home made merchandize, engineering projects and services,” in accordance with global practice.

It seems that the Chinese government will have to define “home made products” and “independent brands” for automobiles soon.

At CBU/CAR‘s Presidents’ Forum held during Auto Shanghai 2009 in April, Huang Yonghe, director of policy research under the China Automotive Technology & Research Center (CATARC), told the audience that an independent vehicle brand in China should satisfy the following criteria: a China-registered but global unique trade mark owned by a company registered in China, with full independent intellectual property rights in production, product improvement, certification and technology transfer.

Based on such criteria, most of the passenger vehicles made by Chery, Brilliance-Jinbei, Geely, BYD, Great Wall, JAC, Lifan, FAW Car, etc. are home made or independent vehicles. Locally assembled VW, Audi, Buick, Chevy, Peugeot-Citroën, Toyota, Ford, Honda, Nissan, Chrysler, Mitsubishi, Isuzu, Suzuki, etc. are foreign brands instead of home or independent brands. But an independent vehicle designed and made by a joint venture such as the Linian of GAC-Honda would be considered as an independent brand.

It would be interesting to see how China’s central authorities will officially define “home made” and “independent brands.” Despite controversies in such definitions, we should expect that as far as government procurement is concerned, China will act no different from the governments in the U.S., Germany, France, Japan or Korea in favoring local manufacturing and local independent brands.

Such definitions will have a profound impact on future market demand of the types and makes of automobiles assembled in China. The current situation of foreign brands dominating China’s institutional and official car market is likely to change soon.

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