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FAW’s life and death struggle to develop its own brands

At the recent Shanghai auto show, First Automobile Works Group (FAW) displayed models under the four brands it owns: Jiefang (Liberation), Hongqi (Red Flag), Xiali and Besturn. For the first time, models from its joint ventures were absent from the FAW pavilion.

This is the first time in many years that FAW showcased only cars of its own brands, with 22 vehicle models, 11 engines and three transmissions. In the number of exhibits and their technological levels, FAW was undoubtedly a leader among independent Chinese automakers. Never has FAW paid greater attention to the development of own-brand autos as now.

FAW general manager Xu Jianyi, a characteristically low-key man, says little about FAW’s vigorous implementation of its self-development strategy. An inside source says: “Despite little media exposure, FAW has been concentrating resources on developing own-brand vehicles.”

FAW has not entered into a joint venture with Mazda, although the two do cooperate in sales. Inside sources say this is not due to a lack of enthusiasm on the part of Mazda and owner Ford Motor Co. but because FAW is not willing to lose its subsidiary, the FAW Car Co., as its production base for own-brand cars.

Inside FAW, development of own-brand cars is now regarded as the automaker’s “core business.” Xu Jianyi has set a definitive target in the next three years to markedly improve the competiveness and sales of own-brand vehicles.

This is a battle FAW must fight to win or die, Xu says.

 

FAW postpones JV with Mazda

In an interview in late April, Noriaki Yamada, president and chief operating officer of Mazda Motor (China) Co., said that Mazda and FAW had discussed matters concerning the establishment of a manufacturing joint venture and that no decision had been made.

The FAW Car Co. began producing the Mazda 6 in 2003. FAW and Mazda then established a sales joint venture. The two have long intended to set up a manufacturing joint venture but nothing has happened so far.

Earlier, some people speculated that Ford, which controls Mazda, might have played a role in calling off a proposed joint venture between Mazda and FAW because its Chinese partner, Chang’an Automobile Group, does not like Mazda to have another Chinese partner. But, according to inside sources, the foreign side has not hampered the progress toward joint venturing. Rather, FAW is not willing to lose the FAW Car Co. production base for a JV operation.

In a typical joint venture, the Chinese side usually provides land and manufacturing equipment as investment while the foreign side offers technology and cash, with each side having a 50 percent equity share. But, with FAW adopting a strategy that gives priority to developing own-brand autos, such a joint venturing mode seems no longer suited to the Chinese automaker.

Even if FAW and Mazda were to establish a joint venture, the FAW Car Co.’s manufacturing and R&D assets would not be transferred to the joint venture since these assets are FAW’s most important base for developing own-brand autos. Given the fact that Dongfeng Motor, Beijing Automotive Industry (Holding) Corp. (BAIC) and Guangzhou Automobile Industry Group Corp. do not at present have a production base for own-brand passenger vehicles, FAW will not likely give up the existing assets of the FAW Car Co.

Inside sources say that an FAW-Mazda joint venturing wo’t get off the ground in another two years. This is also due to a limited number of Mazda cars produced now. Policy requires that a new plant must have a production capacity of more than 100,000 cars a year.

 

Markedly improve independent vehicle operations

FAW is going to develop its independent car manufacturing business in a big way and deepen cooperation, Xu Jianyi said at a recent internal meeting.

Deepening cooperation with foreign partners will have a direct bearing on independent development. At the Shanghai auto show FAW displayed the HQ SUV, Besturn B50 sedan, Besturn B50HEV hybrid and the CA12GV engine. By making use of technological resources from Toyota, Volkswagen and Mazda, FAW hopes to develop products speedily and establish its independent R&D system. 

Corporate data show that FAW has acquired a system integration capability for medium- and high-end cars, the capability in styling and the capability to develop economy models entirely on its own. From developing the “Little Red Flag” sedan on the basis of the Audi 100 platform to revamping the Jetta project to developing a whole new “Big Red Flag” sedan, FAW has basically acquired the capability to develop passenger vehicles of medium- and lower classes. It has acquired more than 30 pieces of core technology.

On April 20, in front of the FAW display area, Xu Jianyi briefed visiting Vice Minister of Industry and Information Technology Miao Wei on the Besturn B50HEV hybrid sedan and progress FAW has been making in developing new energy vehicles.

Unlike Zhu Yanfeng, his predecessor who once talked about “doing quiet work for 20 years” for independent development, Xu Jianyi has an urgency for FAW’s independent development program. He has set a near-term goal for FAW to markedly improve the competitiveness of its own-brand vehicles in three years.

Xu has proposed four specific steps for FAW’s independent efforts: “First, seek survival; second, solidify the business; third, make it strong; and fourth, make it big.” Unlike some other homegrown automakers that emphasize size for own-brand operations, Xu wants to prioritize survival and seeks size at the last stage of development. 

According to the FAW management, the immediate problem in its own-brand operation is to ensure survival by acquiring sustainability and a self-renewal capability for such operations. Its goal is to have sales of own-brand autos exceed 1 million units in 2010 out of total sales of over 2 million units and, in 2012, to have sales of own-brand autos exceed 1.5 million units out of total sales of over 3 million units. By then, FAW hopes to become No. 1 among domestic automakers in both total sales and sales of own-brand cars.

Xu Jianyi has decided to increase investment in independent R&D. This year FAW is expected to outlay ¥4.23 billion ($622 million) for technological R&D, up 61.45 percent over last year. FAW plans to spend a total of ¥13 billion in own-brand operations during the 11th Five-Year Plan period (2006-2010), of which ¥8.8 billion is for R&D.

 

Behind Xu Jianyi’s low-key façade, FAW has begun waging a battle in the own-brand field, a battle it must fight to win or die.

Rewritten by Raymond Chen based on author’s

article carried by 21 Shiji Jingji Baodao or 21st Century Business Herald

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