Made-in-Asia cars threaten to squeeze Europe market

Wed, Mar 5 08:56 PM

By Chang-Ran Kim, Asia Auto Correspondent

GENEVA (Reuters) - As growth in the European auto market levels off and a global economic slowdown looms, Europe's carmakers face a fresh fight from cheaper Asian rivals including new names set to boost exports to the continent.

This week's Geneva auto show is introducing some of the brand names that might be familiar sights on the streets of London and Paris in coming years, makes such as China's Brilliance Auto and BYD Auto.

The Indian maker of the $2,500 Nano "people's car", Tata Motors, also hopes to eventually crack the European market, Tata Group Chairman Ratan Tata told reporters.

India, China and South Korea all have brands set to step up the battle in Europe against makers such as Volkswagen and Renault.

Profit margins are already low in Europe due to the popularity of small cars and diverse tastes, but automakers looking to grow through exports to emerging markets now face increasing traffic coming the other way as plants in India, China and elsewhere step up production headed for Europe.

"It has been nice in a way because Western carmakers have been going into emerging markets for their growth," Philippe Houchois, auto analyst at JP Morgan said.

"Eventually carmakers in emerging markets will come to the West to return the favour."

Western firms have helped develop auto markets in countries such as China where Brilliance Auto, for example, partners with BMW AG.

The Chinese company now has its sights set on Europe and expects to have distributors covering the main European markets by the end of this year selling its lower-priced saloons.

It aims to compete mainly with South Korea's Hyundai Motor Co but also with some Japanese and French brands, Hans-Ulrich Sachs, CEO of Brilliance importer HSO Motors Europe, told Reuters.

"The perception towards Chinese cars is higher than it was for Korean cars 17 or 18 years ago," he said.

"It won't take us as long as Hyundai did to get to where it is now in Europe," added Sachs, who helped launch the South Korean brand in Europe nearly two decades ago.

Analysts say in five years, the new entrants could chisel out a niche in Europe.

"In a three-year view, there's no risk, but in five years, yes," JP Morgan's Houchois said.

Ashvin Chotai, an independent, London-based auto analyst, agreed the drive into the market would be slow, but said some European brands were more exposed than others.

"The impact will be gradual but companies such as PSA Peugeot Citroen, Renault, Fiat and Ford currently appear vulnerable."

COUNTER-ATTACK

In addition to emerging brands, Asia's big, established carmakers such as Honda and Hyundai are also on the move, using plants in China and India to boost exports to Europe.

Japan's Honda Motor Co has been exporting most of the Jazz/Fit subcompacts it sells in Europe from its export-only factory in China and last year boosted capacity to 50,000 units a year.

Toyota's India chief has said the Japanese automaker's planned low-cost car, expected to be built in India initially, will likely be exported to Europe.

Top South Korean carmaker Hyundai exported nearly 60,000 Atos, Getz and i10 cars to Europe from its Indian factory in 2007 and that figure is set to surge this year after it opened a new factory to double its annual capacity in India to 600,000 cars.

About half of that is earmarked for exports, mostly bound for Europe, Hyundai Chief Executive Kim Dong-jin told Reuters in Geneva.

Also from India, Japan's Suzuki Motor Corp is planning to export a hatchback model based on the Concept A-Star from unit Maruti Suzuki India Ltd later this year. It plans to sell about 80,000 units of the city car annually in Europe.

Direct exports from South Korea are also on the rise, with GM Daewoo, a unit of General Motors Corp, shipping 419,292 vehicles to Europe under the Chevrolet brand last year, a rise of 48 percent from 2006.

That accounted for about one-fifth of GM cars sold in Europe.

Japan's Nissan Motor Co has factories in Britain and Spain but also imports cars from Mexico, Japan, and South Korea. Indian exports to Europe are next on its list.

"Nissan is not sleeping," Nissan Europe Senior Vice President Brian Carolin said, citing among other plans the company's intention of building a $3,000 car in India for sale also in other emerging markets.

"In the future for Europe, we will definitely need to be exploiting other lower-cost sources of manufacturing," he said.

One European automaker hoping to play the same game is France's Renault, which is showing its South Korea-made Koleos crossover vehicle at the Geneva auto show.

It hopes to begin selling it in Europe this year and follow the 4X4 car with others, such as a successor to the SM7 sedan, company officials said.

Analysts say increasing production by Europe's automakers in Eastern Europe is also key to competing with imports on cost.

"Competing on cost would be tough, which is why new factories are cropping up in Eastern European countries such as the Czech Republic, Slovakia, Hungary and Rumania instead," Chotai said.

(Additional reporting by Cheon Jong-woo and Marcel Michelson)

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