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Taiwan Yulon eyes market in Mainland China

HANGZHOU, Zhejiang ¨C Taiwanese automaker Yulon Motor Co., Ltd. plans to manufacture passenger vehicles in Mainland China beginning in 2009, according to a report in China Business News.

Yulon Motor signed an agreement in February this year with a local vehicle remanufacturing company named Zhejiang Zhongyu Group (Zhongyu) to set up a 50:50 joint venture in the Xiaoshan Economic & Technological Development Zone in Hangzhou, Zhejiang Province.

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When the project is approved by the government, the two sides will pour in an initial investment of ¥4.65 billion ($671 million) in the JV, and build an annual output capacity of 120,000 passenger vehicles, 20,000 engines and a R&D center as well. The JV aims to launch three models around 2010, a passenger car, an SUV and an MPV, probably carrying the “Luxgen” badge (combination of “Luxury” and “Genius,” a newly built brand of Yulon Motor). Some of the engines will be shipped to Yulo’s manufacturing plant in Taiwan. Around 70 percent of the JV produced cars will be sold in Mainland market while the rest will be sold overseas via Yulo’s distribution networks. Yulon vehicles will probably be the first Taiwan brand cars to be mass produced in Mainland China.

Production would start with the SUV model to be equipped with a 2.0L turbocharged gasoline engine, scheduled to be marketed in the fourth quarter of 2009. Monthly output capacity of the SUV model will be around 2,700 units. Then in early 2010, the JV will produce the MPV model to be propelled by 2.0L and 2.2L turbocharged gasoline engines. The passenger car model to be powered by a 1.5L gasoline engine is set to hit the market by the end of 2010.

Previous presence in Mainland

Yulon Motor, an affiliate of Yulon Group, is the largest automaker in Taiwan. The company has been producing and selling in Taiwan the Teana luxury sedan and other models from Nissan.

Yulon Motor set up a JV company, Fengshen Automotive Co., Ltd., with Dongfeng Motor Corp. (DFM) in Guangzhou of South China in 2000. However, when DFL (Dongfeng Motor Co., Ltd., the joint venture company between DFM and Nissan Motor Corp.) was established, Fengshe’s plant was converted into a manufacturing base of DFL. And Yulon got 8 percent equity share of DFL as a result. Due to its low share percentage, Yulon only obtains limited profits from DFL, in spite of the fabulous performance of the company in the Chinese market.

China Motor Corp., another affiliate of Yulon Group, formed a 50:50 joint venture ¨C Southeast (Fujian) Motor Co., Ltd. ¨C with Fujian Motor Industry Group Corp. in 1995. Yet the JV later sold 25 percent company share to the Japanese automaker Mitsubishi. So far, the performance of Southeast (Fujian) Motor is not as satisfied as expected.

Clouded future ahead

Yulon is eager to make new move in the vast and fast expanding Mainland market, where vehicle sales are expected to top 10 million units in 2008. Yet its future is stilled clouded.

Zhongyu, Yulo’s new partner, withdrew from its Wuhan manufacturing plant this January due to capital shortage, and only kept its remodeling operations in Hangzhou. Zhongyu has experience in remodeling vehicles, such as the Mercedes-Benz Sprinter and Vito, but not in manufacturing vehicles.

“Zhongyu is trying to enter the vehicle manufacturing industry again, but it’s hard to tell at this point if it will lose out as what happened to Bird (a Chinese cell phone maker) and Aux (a Chinese home appliances producer) before,” an industry expert was quoted as saying. “However, forming a joint project with a Taiwanese automaker will be much better than working on its own. Like many other independent brands in the Mainland market, Yulon and Zhongyu still face serious challenges in terms of brand image, R&D ability, and sales and marketing.”

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