Yulon, GM ink joint venture pact

Yulon Motor Co (裕隆汽車) inked an agreement with General Motors Corp (GM) yesterday to set up a joint venture next year.

The final contract will be signed by Yulon's vice chairman Kenneth Yen (嚴凱泰) and Shanghai GM's chief executive officer Phil Murtaugh before the Lunar New Year holiday, which falls on Feb. 9.

The new joint venture will distribute imported Opels and Cadillacs and allow Yulon to manufacture Buick sedans and recreational vehicles.

The two parties did not elaborate on the number of models that the new venture will manufacture or when they would hit the market.

"The two sides will have `equal status' in the new venture," GM Taiwan managing director Arthur Wang (王大鈞) said on the sidelines of yesterday's signing ceremony, adding that Shanghai GM is an good example of a well functioning venture.

Shanghai GM, formed in 1997, is a joint venture between GM and Shanghai Automotive Industry Corp (上海汽車), with the two parties holding equal stakes in the Chinese company.

Wang, however, shied away from providing further details of the stake structure and the amount of the paid-in capital.

"Economy of scale is essential to the auto-making industry," said Yulon president Chen Kuo-rong (陳國榮), who reportedly could take the helm of the new venture.

"The deal could help us enhance our capacity utilization rate to reach economy of scale," he said.

The deal is expected to help boost Yulon's utilization rate to 70 percent of the 150,000-vehicle annual capacity from the current 60 percent.

In comparison, Kuozui Motors Ltd (國瑞汽車), the nation's largest automaker -- which assembles cars for Toyota Motor Corp -- has a utilization rate of 85 percent, according to figures from Yuanta Core Pacific Capital Management (元大京華投顧).

Yen said on Monday that contract manufacturing for multi-brands is a trend that both Yulon and its affiliate China Motor are following.

However, one analyst was quick to raise doubts yesterday that Yulon will see any substantial effect from the new joint venture.

The new model to be distributed by the joint venture -- designed by South Korea's GM Daewoo Auto & Technology Co and to be distributed here under the Buick brand in the second half of next year -- may not be as popular as expected, said Sam Wu (吳鴻昇), an automotive industry analysts at Yuanta Core Pacific.

"How big the contribution [of the joint venture] would be remains a question," Wu said.

But the deal appears positive for Yulon in the long term -- if it can expand its manufacturing line to Opel-brand vehicles, in addition to the Buicks, and export GM-brand cars to Southeast Asia through the joint venture.

"The increase in production scale could in turn reduce Yulon's costs and enhance its competitiveness," Wu said.

Yulon will try to manufacture Opel vehicles if the euro softens in the future, considering the car's reputation and popularity on the local market, Chen said.

Yulon's talks with France's Renault SA to make cars here were hindered by the strength of the euro, which made it too expensive to import component parts.