GUANGZHOU, China—Foreign auto makers in China are dusting off older designs as they scramble to come up with China-only brands of low-cost cars in response to a surge in demand for affordable vehicles from new middle-class buyers.
The change was evident at the auto show that opened Monday in Guangzhou, a southern industrial hub, where foreign makers and their local Chinese partners showcased or discussed new efforts to go after emerging middle-class consumers in China's less-developed hinterland. The annual income of many of those consumers is now climbing above 50,000 yuan, or about $7,500, which executives consider the threshold for car ownership in China.
Honda Motor Co. of Japan on Monday unveiled its first production model for the Linian brand, known as Everus in English. Honda and its joint-venture partner, Guangzhou Automobile Group Co., plan to launch the Linian subcompact sedan next year. The joint venture between Nissan Motor Co. of Japan and Dongfeng Motor Group Co. is also promoting its new China-only brand, Qichen, by demonstrating a concept model at the show. The small-car brand, whose English name is Venucia, is due to launch in 2012.
Meanwhile, General Motors Co.'s Wuling joint venture, which makes no-frills microvans, has decided to build a plant for the venture's new China-only brand, Baojun, GM spokesman Johan Willems said on the sidelines of the Guangzhou show. The joint venture, with Shanghai-based SAIC Motor Corp., started production of its first Baojun-brand passenger vehicle last month at a plant in the southern province of Guangxi, with plans to start selling the car early next year. The current plant, which produces the Baojun sedan and other cars, has annual capacity of more than 100,000 vehicles. Mr. Willems said the new plant, also in Guangxi, will open by the end of 2012 with capacity to make 400,000 vehicles a year.
None of the auto makers disclosed a pricing strategy in Guangzhou Monday.
Demand for such low-cost cars, especially in the country's interior, equates to "a very, very big market," Kevin Wale, head of China operations for U.S.-based GM, said on the sidelines of the auto show. Low-cost models in China already account for sales of six million vehicles a year—bigger than major markets such as France and Japan, he said. The growth in demand for such cars, even as higher-end vehicles continue to sell well in big cities, shows how in commercial terms "China is not a single country. It's many countries within a country," Mr. Wale said.
The boom in demand for lower-end cars caught many foreign auto makers by surprise. One response: Car makers such as GM and Honda are letting their China joint ventures use vehicle designs and technologies that they recently retired. In GM's case, it allowed Wuling to tap GM for what one executive described as some of the existing "architecture components" it already developed over time for its global family of compact cars, some of which it no longer uses. For Linian's first car, Honda and its partner Guangzhou Auto say they used the platform for a previous version of Honda's City model, while Nissan plans to use the outgoing Tiida's underpinning technology to develop Qichen's first car, according to market researcher J.D. Power & Associates. Nissan declined to comment.
The goal of such efforts is to lower development costs to achieve the prices companies say they need to compete with cars from Chinese auto makers such as Geely Automobile Holdings Ltd. and Chery Automobile Co. that specialize in low-end vehicles—between 50,000 yuan and 90,000 yuan for small cars and 30,000 yuan to 50,000 yuan for commercial microvans.
Some critics say foreign auto makers' move to create China-only cars and brands could backfire by fostering stronger competitors in their deep-pocketed Chinese partners, many of them big state-owned enterprises.
Hironori Kanayama, chief executive of Honda's joint venture with Guangzhou Auto, said on the auto show's sidelines that Honda isn't concerned about such a possible outcome. "What's absolutely key for our survival is to always innovate and go a few steps ahead in our technology," he said.
At the Guangzhou auto show, some notable competitors were absent from the China-only brand trend. Toyota Motor Corp. of Japan, for instance, didn't show or talk about any product aimed at the burgeoning market for sub-60,000-yuan cars and says it has no immediate plans to start a China-only brand.
However, a person familiar with the situationsays Toyota's joint venture with FAW Group Corp. has been developing a China-only car based on an older, outdated Corolla platform for a possible brand it might launch in China. Earlier this year, the joint venture showed off the model under development at a ceremony to open a newly expanded technology center in Tianjin, according to the person.
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