AUTOSHOW-A long drive to global dominance for China carmakers

* No obvious overseas M&A targets – industry watchers

* China may take lead in renewable energy vehicles

* China not expected to challenge global players for
decades

By Alison Leung

HONG KONG, April 23 (BestGrowthStock) – Chinese car makers may have
the world’s largest market to play in but face many hurdles
including a shortage of original models, an overcrowded
industry and a lack of overseas acquisition targets before they
can challenge for global leadership.

None of this has dimmed the ambition of the country’s auto
entrepreneurs, however. BYD Co (1211.HK: ) Chairman Wang Chuanfu,
who has become China’s richest man after U.S. billionaire
investor Warren Buffett invested in his company, has said he
wants to build BYD into the world’s biggest car company by
2025.

To be sure, the swift growth in car sales in China in the
past couple of years has been nothing short of breathtaking.
Sales rose almost 50 percent last year to 13.7 million vehicles
and are up 76 percent in the first three months of 2010.

But translating that strong growth at home and taking on
the likes of Toyota Motor Co (7203.T: ), General Motors [GM.UL]
and Ford Motor Co (F.N: ) on the global stage is mission that
could take China’s top automakers decades.

“Topping China’s market is relatively easy, but topping the
world market by 2025? I would say that’s a shot a little too
far,” said Anil Sharma, an auto sector research analyst at
Hybrid-ev.com.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For more from Beijing Auto show:
[ID:nSGE63K0EL]
For graphic on China car market:
http://link.reuters.com/jad78j
For graphic on top China models:
http://link.reuters.com/cuz68j
For graphic on quality measures:
http://link.reuters.com/vep88j
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CHINA’S CLUTTERED MARKET

One condition that a carmaker must meet before it succeeds
globally is a dominant position in its domestic market.

“History has shown that all car manufacturers who were
successful in the export market, (did so) after they had a
strong position in their home market,” said Klaus Paur,
director at TNS’ North Asia automotive division.

When Toyota overtook General Motors as the world’s best
selling carmaker, for example, its sales accounted for nearly
half of the Japanese market.

By contrast, China’s industry remains fragmented, with more
than 70 domestic manufacturers and no dominant producer.

“At the top (of the industry), it is still not very
crowded, but at the bottom it is. There are too many players,”
said Sharma, who predicted consolidation would come only after
the sector’s growth loses steam.

Local winners are starting to emerge, however. State-owned
SAIC Motor (600104.SS: ), BYD and Geely Automobile (0175.HK: ),
whose parent is buying premium brand Volvo from Ford, are all
tipped as being among a handful of winners in China in coming
years.

Another contender is Great Wall Motor Co (2333.HK: ), the
largest Chinese sport utility vehicle (SUV) maker without a
foreign partner.

“We believe Geely, BYD, Great Wall and SAIC are potential
winners,” said John Bonnell at JD Power information services
provider, part of McGraw-Hill Companies (MHP.N: ).

C-CLASS OR JUST CK?

Competing on the global stage will also require greater
innovation from China’s auto industry. To date, however,
China’s carmakers have built much of their success by utilising
the technology and designs of foreign competitors.

“We have seen in the past that there was a lot of copying
and imitating,” Paur said.

The Geely CK, for example, bears a striking resemblance to
the Mercedes-Benz’s C-Class cars. And on the highway BYD’s F3
model, the best selling model in China, could easily be
mistaken for a Toyota Corolla.

“I think to be a world market leader you need to bring
innovation to the market; you need to be a leader in new
products in the next stage of development,” said Bonnell.

Green cars are emerging as one bright spot for China, with
Chinese carmakers displaying a range of electric and hybrid
cars at this year’s Beijing Autoshow. [ID:nTOE63I00A]

“I see China taking the lead in electric vehicles, hybrid
vehicles for a combination reasons. It has a good chance to
outride others in terms of the market, in terms of government
support and in terms of raw materials supply,” said Sharma.

Another classic route to industry dominance is through
mergers and acquisitions — a strategy Geely has pursued with
its deal to buy Volvo. The transaction will give the Chinese
carmaker a globally recognised brand, as well as technology and
know-how that may prove useful elsewhere in its operations.

The problem, say analysts, is that there aren’t any good
companies up for sale.

“After Saab and Hummer slipped through the hands of Chinese
car manufacturers, and Volvo has been bought by Geely, I don’t
see relevant international acquisition targets for domestic car
manufacturers in the near future,” said Paur. But he expects
carmakers to intensify collaborations across borders, which
would mutually benefit Chinese and foreign and manufacturers.

Instead of buying brands or technology, BYD signed an
agreement last month with Daimler (DAIGn.DE: ) to jointly develop
electric cars for China.
Investing Advice

(Editing by Don Durfee and Lincoln Feast)

AUTOSHOW-A long drive to global dominance for China carmakers