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FAW in Mexico

China cars get Mexico beachhead

Friday, January 09, 2009

FAW Group Corp., one of China's three largest domestic auto manufacturers, has begun selling new cars for as little as $6,550 in Mexico in what is believed to be the first foray by a Chinese auto-maker into North America.

Grupo Salinas, a specialty retailer and the carmaker's commercial partner, brought in an initial shipment of about 6,000 FAW cars by boat to Mexico City and has found willing buyers for a portion of them, company spokesman Daniel McCosh said yesterday.

"They're not all sold," Mr. McCosh said. "The higher-end and the lower-end vehicles are moving better than the mid-priced models."

Industry executives with rival companies have been nervously anticipating the arrival of Chinese vehicles into North America because of their potential to dramatically shake up the market with their low prices. The cheapest new car in Canada now is Hyundai's Accent hatchback at $9,995.

In Mexico, Chinese car companies may have found a beachhead into the continent. Ford Motor Co.'s former top executive in Mexico, Kathleen Ligocki, heads the Grupo Salinas auto unit that sells the FAW cars.

The low end of the car market "is where consumers in Canada are heading to deal with higher costs of operating and the general demise of the economy," DesRosiers Automotive Research said in a report this week.

Almost 850,000 small, so-called entry-level vehicles will be sold in Canada when the final 2008 sales tallies are compiled, the consultancy said.

Analysts have argued many of the vehicles built in China's factories are not yet ready for prime time in the West because they must meet tougher safety and emissions regulations than in their home market. Brilliance Auto's BS6 car, for example, failed crash tests in Germany in 2007.

But it is the higher standards of buyers in Canada and the United States that will stop an immediate push by Chinese companies northward, said Pascual Francisco, senior market analyst for Latin America for IHS Global Insight. Chinese companies are still several years away from widespread selling in those two countries because they would fail to compete there, he said. "They must improve quality first."

FAW Mexico's Web site urges taxi operators to consider its F4 sedan at a price of 819 pesos a week, or $73. Its cheapest car, the F1 hatchback, can be bought outright for 75,900 pesos, or about $6,550 at yesterday's exchange rates.

China's central government, which controls FAW, has been pushing the export of Chinese-made vehicles. The cars have made their way into the Middle East, the former Soviet block countries, North Africa and Southeast Asia.

A pullback by increasingly frightened consumers in Canada and the United States, and the worst financial crisis since the Great Depression, has led the Chinese carmakers to take a less aggressive approach toward North America, said David Zhao, a Toronto-based research analyst at Frost & Sullivan's Automotive Practice.

Total industry demand for the two countries is expected to be 13.47 million vehicles in 2009, a 10% drop from 2008, according to Scotiabank Group.

"The demand is quite unstable," Mr. Zhao said. "FAW and other Chinese automakers are still implementing their globalization plans. But since the current financial crisis hit, their plan might be adjusted. For the moment, they still want to stay within the Mexico market. They want to accumulate experience."

FAW is building a car assembly plant in Mexico. "Frost & Sullivan believes this is the first step for FAW products to enter the U. S. market," it said in a report last year.

Other Chinese carmakers have hit their own hurdles in penetrating North America. Chery Automobile Co. aborted its effort to sell cars in the United States in the near term after a manufacturing deal with Chrysler LLC was iced.

New Jersey-based importer Chamco Auto, which claimed at the Detroit Auto Show one year ago that it would begin selling vehicles made by Chinese manufacturer Hebei Zhongxing Automobile Co. at rock-bottom prices in Canada in 2009, has been plagued with legal problems. It is now working toward a Mexico launch.

F4 sedan

F1 hatchback

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