Bu Gang, a Shanghai logistics company employee, shunned General Motors Co. and Volkswagen AG when buying a new car and instead bought one made by the automakers` Chinese partner.
"The car is pretty cool with good quality and a very attractive price," Bu, 30, said of the mid-sized SAIC Motor Corp. Roewe 750 sedan he chose over a similar-priced Volkswagen Passat or a smaller Buick Excelle last year.
"It`s really changed my impression of Chinese brands."
SAIC and other Chinese carmakers that work with overseas companies are introducing their own models to boost margins in a country set to become the world`s biggest auto market this year. Foreign automakers typically have no remedy because Chinese law forces them to work with a local partner.
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"There`s nothing they can do," said Scott Laprise, a Beijing-based CLSA analyst.
"Your goal as a foreign automaker is just to stay ahead, come up with new technology, spend more money, and be one step ahead of your Chinese partner."
SAIC will add about 30 own-brand models by 2012, threatening Volkswagen and U.S. government-controlled GM. China`s biggest domestic automaker more than tripled sales of Roewe sedans this year.
The company introduced the Roewe 750, its first own-brand model, in January 2007. The car, fitted with a 1.8 liter or 2.5 liter engine, costs from 172,800 yuan ($25,300) to 258,800 yuan. It subsequently unveiled the Roewe 550 as well as adding the MG sport-car brand through its takeover of Nanjing Automobile Group Corp.
Detroit-based GM has said it intends to double China sales to 2 million over the next five years.
"Competition between them is inevitable," said Lin Huaibin, a Beijing-based IHS Global Insight analyst.
"GM and SAIC are friends, but also enemies."
That complicated relationship isn`t unique. Beijing Automotive Industry Holding Co., a partner of Hyundai Motor Co., joined a bid led by Koenigsegg Automotive AB to buy GM`s Swedish unit, Saab Automobile. The company plans to sell Saabs in China, according to Koenigsegg.
Chongqing Changan Automobile Co. already sells more own- brand vans and cars than it does for partners Ford Motor Co., Mazda Motors Corp. and Suzuki Motor Corp.
SAIC sales trail GM by a wide margin. It sold 47,560 Roewe sedans in the first eight months, while GM`s China sales, including the minivans and sedans it makes with SAIC, jumped 50 percent to 1.11 million.
"Our own-brand cars are selling well and have started taking off, but they`re still at a very low volume," SAIC spokeswoman Zhu Xiangjun said.
"We are not a competitor."
The Shanghai government-controlled automaker made its first car, the Phoenix, in 1958, according to its Web site. It began building cars with Volkswagen in Shanghai in 1985 and then formed a GM venture making Buicks two years later.
Vehicles made with the two overseas partners accounted for more than 90 percent of the 1.72 million SAIC sold last year.
The size of the Chinese market and a lack of name recognition for domestic brands may allow GM to continue growing in China, said Kevin Wale, head of its operations in the country.
"We have known that SAIC and all of the other Chinese brands have to develop their own-brand vehicles, but none of them have won," he said.
"We will continue to be very, very successful GM and SAIC will share any technologies they jointly develop, including work on alternative-energy vehicles," he added.
China has required overseas carmakers to work with local partners since at least 1984, when Chrysler`s Jeep became the first foreign automaker to open a plant in the country. Under the national auto policy, local partners must hold at least 50 percent of ventures.
The rules are part of government efforts to create globally competitive auto groups. The ventures damp competition from overseas automakers at home and also allow domestic carmakers to learn about the industry. Overseas carmakers benefit from the access and local knowledge they get from Chinese partners.
"SAIC has its attraction, which is a huge sales network in China," said Stanley Zhu, Shanghai-based automotive director of Frost & Sullivan China.
"It uses that to get technology from GM."
Bu, the Roewe owner, said he only considered Chinese brands after a suggestion from a friend. The next time he buys a car, he won`t need any pushing to look at domestic brands, he added.
"I will surely consider them again," he said.
GM and SAIC`s sales have surged in China this year as 5 billion yuan of government subsidies spur rural demand for low- cost vehicles. Their SAIC-GM-Wuling Automotive Co. venture, the nation`s biggest mini-vehicle maker, expects to boost full-year sales about 40 percent to 900,000 vehicles.
Nationwide auto sales may rise as much as 28 percent this year to 12 million, according to the government. GM has said industrywide sales in the U.S. will likely be about 10.5 million.
SAIC is also turning to GM for help expanding overseas after its South Korean unit Ssangyong Motor Co. collapsed. The two are discussing selling Wuling light commercial vehicles in India, Karl Slym, managing director of GM`s India unit, said on Sept. 24. GM may help SAIC work with different cultures and trade unions, issues that stretched SAIC at Ssangyong, said Zhang Xin, a Beijing-based analyst at Guotai Junan Securities Co.
"SAIC has realized it hasn`t got the energy or capability" to run an overseas automaker on its own, he added.
GM`s greater experience and history may enable it to fend off SAIC in China for the time being, CLSA`s Laprise said. The long-term threat remains.
"The Buick name is very strong in China and GM won`t just go away," Laprise said.
"But, life will get harder and harder." (Bloomberg)