China Motors president explains why automakers should export

Taipei Times: China Motor (中華汽車) is the most aggressive automaker in terms of exporting locally made vehicles to overseas markets. The company plans to increase the revenue contribution of its export business from 20 percent at present to 40 percent [valued at NT$20 billion (US$59.6)] within the next three years. How do you plan to achieve this target and what is your opinion on the strategic importance of overseas markets?

Huang Wen-cheng (黃文成): The automotive market in Taiwan has become saturated with demand for only 450,000-500,000 units each year. The stiff competition has prompted an excess of supply and therefore local makers need to expand their business beyond Taiwan's borders.

The development capabilities of Taiwanese makers in autos and auto components have matured in recent years, and we now have the ability to export them to overseas markets. Just as Taiwan is able to export its locally made bicycles and motorcycles to other countries, now exporting cars should be the trend.

Compared to our competitors, who work closely with other foreign automakers, China Motor is a more independent company. We can lay out our own development plans, and we decided to be a pioneer in the export business. It's never easy in the beginning, but we are convinced that this segment will grow tremendously in the future.

Our major export markets for vehicles now include Southeast Asia, North America and the Middle East, and we have some components being sold in Australia, Venezuela and China as well. We are now evaluating the possibilities of exporting cars to Japan. Mitsubishi Motors has sent its staff to Taiwan to discuss opportunities with us. We need to study the investment costs and the price acceptance in the Japanese market and will make a decision within the next three months.

TT: In addition to South-East Motors Co (東南汽車), which you helped set up in 1995, China Motor will set up a second joint venture, DaimlerChrysler Vans (China) Ltd (DCVC), with DaimlerChrysler's Fujian Motor Industry Group (福州汽車) in China next month. What is your view on the importance of the China market?

Huang: China is now the world's third-largest auto market with estimated demand at 5.6 million units this year. Next year it will pass Japan and become the second-largest market, behind the US.

Moving into China will enable us to increase our economies of scale as we are currently selling only around 90,000 vehicles in Taiwan. The huge Chinese market will offer us cheaper production costs and help us to improve our profit margins.

If the prospect of China forming a free-trade zone with ASEAN becomes a reality, the lower taxation will benefit us in terms of production costs. The free-trade zone might even become one of our export markets in future.

However, the macroeconomic controls instituted by the Chinese government in order to prevent the economy from overheating last year have made the auto market there fairly competitive. These controls have made it difficult for Chinese consumers to obtain car loans from banks, thereby affecting their willingness to buy new cars.

We expect our business there will be much better next year as the effect of the macroeconomic controls will begin to fade and we will introduce more new models.

In the case of South-East Motors, it was profitable in the first few years.