Rover rolls into China under new management

Chinese adapt bankrupt British car to realize global ambitions

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SHANGHAI--Over the past two decades, China’s auto industry has evolved with astonishing speed from a group of inefficient state-run behemoths hungry for foreign investment and management experience into sleek operators more interested in acquiring overseas car makers than partnering with them.

China already sells more vehicles overseas than it imports. Most are cheap cars sold to relatively low-income consumers in Southeast Asia, Russia and the Middle East, but that scenario will likely change within a few years, thanks in part to a bankrupt British car maker, MG Rover.

The U.K. company is providing stepping stones for two Chinese companies, Shanghai Automotive Industry Corp. (SAIC) and Nanjing Automobile Group Corp. (NAC), both eager to expand overseas.

Following months of protracted negotiations with MG Rover, SAIC and NAC both emerged with pieces of the English car company. SAIC acquired the intellectual property rights for some Rover products in 2004, including the Rover 75 and 25 series. The Rover name still belongs to one of MG Rover’s past owners, BMW Group, but SAIC is currently negotiating for the name and claims it does have permission to use the Rover name. NAC, meanwhile, has bought the assets of MG Rover and Powertrain Ltd., including the MG brand name.

For SAIC, acquiring bits and pieces of the U.K. company wasn’t a shortcut to gain manufacturing, sales and distribution networks, the usual reasons for a Chinese takeover. Instead, the company cherry-picked technology and research and development expertise, including 150 British engineers, to help its SAIC Motor Manufacturing division create a car under its own brand for the first time. Previously, the state-owned auto giant had only produced cars under the brands of its foreign partners, Volkswagen Group and General Motors Corp.

Even if SAIC succeeds in buying the rights to the Rover name, it may not use it.

There is a “government issue,” said Viveca Chan, Hong Kong-based chairman-CEO of WE Worldwide Partners, an independent ad agency that will help market SAIC’s first solo car. “Some people think it’s fine but some think the idea of a Chinese brand with Chinese name is even more appealing. They are proud to be Chinese, so why use the Rover name? The car will be developed by an international team, rather than sticking only with local technology and know-how. That’s a big difference compared to other local car companies and is the key selling point, not the Rover name.”

Created in China
It may not have a choice, if the negotiations aren't resolved soon. SAIC has already begun producing its own vehicles, using Rover technology. Its still unnamed debut model, the first premium car produced by a Chinese-owned company, will be unveiled on Nov. 18 at the Beijing International Automotive Industry Exhibition, a major event in China's car market. The ad campaign created by WE will break in late October or early November.

It will be available in dealer show rooms by the end of this year, with prices starting at about $26,000. The first model will compete against Japanese models like the Toyota Camry and Honda Accord as well as Shanghai GM’s Buick Regal and Shanghai VW’s Passat, both produced by foreign joint-venture partners. Next summer a family-size model will be added to SAIC's portfolio.

SAIC plans to turn out more than 300,000 cars annually by 2010, including up to 45,000 for export. It even tapped a prominent ex-GM exec, Philip Murtaugh, as exec VP in charge of global operations in Shanghai. When he resigned last March after 32 years at GM, the seasoned pro was exec VP of the American car giant's joint venture with SAIC, Shanghai GM.

“The situation is unique, it says ‘created by China’ rather than 'made in China,' in a very bold way. It’s a matter of timing as well, [launching a Chinese-made car overseas] earlier would have been too difficult for consumers to accept, particularly when it comes to local Chinese brands,” said Ms. Chan.

Just a year or two ago, she added, consumers would have been dubious about high-end Chinese brands. "The fact that it can work now shows the increasing confidence of not just Chinese marketing but also manufacturing.”

Yale Zhang, an auto analyst at CSM in Shanghai, said SAIC's long history and established reputation "gives them an advantage to enter China's high-end vehicle market," a gambit that would be "far more difficult for other Chinese car companies like Chery. I think they can do it."

But he's less convinced it will succeed without the Rover name: "If you can get an already established brand, that's much better than creating a new brand from zero. It would be better to use the Rover name if they can," he said.

Big ambitions
A bigger question, he added, is whether NAC can realize its "big ambitions, which may be bigger than its capacity or capability."

NAC's first MG-branded models are expected to reach dealer show rooms by mid-2007, and perhaps as early as next March to coincide with the company’s 60th anniversary. MG cars will also be made at MG’s existing U.K. production base and at a new U.S. facility in Oklahoma.

“We are working with the European and North American markets as we move forward in re-igniting the brand in 2007 in the [United Kingdom] and Europe, to be followed by a new launch in the U.S. in May or June of 2008,” said Duke Hale, president-CEO of the new MG Motors North America Inc., during a July 12 news conference to outline the company’s plans.

The MG name and global manufacturing base will give Nanjing a competitive edge, Mr. Hale said. “We’re viewing ourselves as a global company, not a Chinese company. At this point, none of the other Chinese companies are looking at building locally. We’re coming in with cars that are European styled, European designed and have the European flair.”

MG Rover’s new owners are not the only Chinese car companies with global ambitions. Wuhu-based Chery Automotive, known for its QQ compact, is the leading local brand and a top ten performer among all auto companies in China. Another company, Hangzhou-based Geely Automobile, makes the popular Free Cruiser model. Both hope to export to developed markets like the U.S. and Europe.

Not just a factory
Following in the footsteps of Japanese and Korean brands like Sony, Toyota, Samsung and LG, Chinese companies like SAIC and NAC are eager to prove they are more than cheap factories for the world. At the same time, they feel pressure to become more competitive just to keep pace with China’s fast-moving marketplace.

Rather than struggle to develop their own brands, however, most Chinese companies have relied on deep pockets and government support to buy existing brands, overseas manufacturing plants and distribution networks.

This shortcut approach has worked for several Chinese marketers already. Most notably, China’s largest PC-maker, Lenovo Group bought IBM Corp.'s personal computer business. Shenzhen-based TCL Group became the world's largest producer of TV sets after it acquired the television set business of France’s Thomson, which owned the RCA brand.

Appliance giant Haier, whose goal is to become the world’s number one white goods seller by 2008, made an unsuccessful bid for the Maytag Corp. last year. About the same time, China's state-owned oil giant, China National Offshore Oil Corp. made a failed hostile bid for the Unocal Corp.

These acquisitions, successful or not, have strong political support at home, as the Chinese government is eager for local companies to create more Chinese brands and products, with our without the aid of foreign resources.

Contributing: Rhoda Miel, staff reporter with Plastics News, another Crain Communications publication

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