[Real_I_Hate_China]

http://en.chinabroadcast.cn/855/2006/04/08/[email protected]

Best-selling models in 1Q 2006

1. VW Jetta : 17,500
2. Hyundai Elantra : 14,000
3. Chery QQ : 11,700
4. VW Passat : 10,600

Well, Chery has a lot of work cut out for them, as current sales dominance by foreigners will expand as new foreign plants under construction goes online. Not to mention that foreigners make $1000~1500 on each car sold, as opposed to QQ that carries a profit of just $50 per car.

 

[Real_I_Hate_China]

foreigners don't make $1000- 1500 on each car sold.

Surely they do. 60% of components are imported by foreign partner, and foreigners charge a jacked up price on components supplied to the joint venture.

For example, the foreign partner sets up a 100% owned engine plant in China and supplies the joint venture with engine at a premium price. This accomplishes two things.

1. The car still meets 40% domestic content rule.
2. Foreign partner makes lots of money.

For example, China's Hyundai's most profitable market with margins running at 25%, as opposed to 10% elsewhere. Elantra in particular is supply restricted and Hyundai's desperately trying to boost its production capacity to 1 million units/year to meet the demand in Chinese market.

They only make 49% of it. The Chinese joint venture partner makes 51% of it because the joint ventures only allow foreign companys to own 49%.

Actually 50%.

 

[Real_I_Hate_China]

Foreigners can't own 100% of any company in China, the most they can own is 49%.

Yes they can, as long as it is not a car company, but an auto parts supplier. And it's 50%. So how foreigners learned to overcome this 50% hurdle and maximize their profits.

1. Only the final assembly company is required to set up as a joint venture.
2. But key components(engine, transmission, and suspension) come from an auto parts supplier 100% owned by the foreign partner.
3. The joint venture company has no choice but to buy parts from this foreign partner's supplier at a rip off price.
4. So foreigners still make lots of money off their cars sold in China.

See, foreigners are not as dumb as Chinese community party believe to be.

 

[Real_I_Hate_China]

If foreigners are supplying car parts at rip off prices, no one will buy them and they'll go out of business. Like Jeep and Beijing Jeep, Chinese cars like Great Wall Hover, Shuanhuan SCEO and SRV Great Wall Sing put Jeep out of business because of their high prices.

It is a fine balance between maximum profit and the price that generates maximum sales. Going by VW and Hyundai's success in Chinese market, I would have to say they know how to price their components while still making a 25% profit.