Times, they are a changing. China, where there is a massive growth in car sales as the economy grows and the population becomes wealthier, has been looking at market forces and investments. China, like Japan up to 70 odd years ago, was a closed market and to enter it, a company needed to have a majority local partner.
That meant that all the European and US car manufacturers cut deals with a fledgling business to build cars locally rather than take the hit on import duties. What transpired was a way for existing manufacturers to upgrade from old Soviet designs to more modern styles and investment in manufacturing facilities. An early partnership was Beijing Jeep that is now Beijing Automotive Industries with partnership with FCA and Hyundai.
Others were Shanghai Automotive Industry Corporation (SAIC) who partnered with Volkswagen and General Motors; DongFeng with Honda, Nissan and Citroen; Guangzhou Automotive Industry Group with Peugeot and FIAT amongst others. Then we saw companies like Geely buying European manufacturers such as Lotus and Volvo.
However, with the rise of the car industry and the opening of the market by the Government, changes in legislation were put into place to relax the foreign ownership of corporations. This has means that the majority partner could be a foreign company – even to the point of total ownership. This legislative change will allow ever greater ownership through to 2022. For some manufacturers, it couldn’t come at a better time, with the US Administration desperate to start trade wars across the globe.
BMW has announced that it will raise its ownership of Brilliance China Automotive Holdings from 50% to 75%. The expected strategy is to increase local production of BMW vehicles to counter the import duties set by China on US made products. BMW were importing cars into China made in South Carolina. In the current trade climate, it makes sense to manufacture product in the market that they are to be sold in.
That means new jobs for those countries that get new factories and no extra jobs (and possibly redundancies) for the older factories. BMW have suggested that investment will be made in China with a new factory in the offing. Analysts think that BMW’s move will force the other big German manufacturers to rethink their China strategies in a competitive challenge.
On the flip side, BMW’s decision could help with the need for more electric power units and other technologies that could get the company ahead in the European market where emissions are to be reduced further in the next decade. The relaxation of foreign ownership could also see a rationalisation of the industry with many nameplates dropping by the wayside to leave a handful of strong brands behind. Clearly BMW would like to be one of those brands.
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