• Fri
  • Aug 1, 2014
  • Updated: 10:55pm

Nanjing Auto starts European drive

PUBLISHED : Friday, 10 March, 2006, 12:00am
UPDATED : Friday, 10 March, 2006, 12:00am

After months of uncertainty, Nanjing Automobile Corp has finally announced it had signed a long lease on the old MG Rover plant in Britain in the hope of restarting sports car production.


As it takes its first step towards entering the European car market, Nanjing Auto is following the tradition of other East Asian carmakers branching out overseas. But car industry analysts in Britain say the company faces daunting challenges, including the lack of a brand, a nonexistent dealer network and a stagnant car market.


'They have to get the product right, they have to get the price right,' said Eric Wallbank, a director of automotive at consultancy Ernst & Young. 'It's a challenge for China to build its own car brand that can stand on the world stage, in terms of product attractiveness and price.'


Nanjing Auto will lease 42.5 hectares at the Longbridge site - developed by St Modwen Properties - in southwest Birmingham for GBP1.8 million ($24.26 million) a year. The deal includes two car assembly plants, a paint shop and administrative offices totalling two million square feet. To protect itself, Nanjing Auto has secured a clause allowing it to get out after six months if it cannot make the project work.


'This means that we can move forward with our business plan to build cars at Longbridge,' Wang Hongbiao, chairman of Nanjing Automobile UK, said at the time.


In July, the company bought MG Rover for GBP50 million after the last independent mass-market British carmaker went bust.


The company shipped most of the factory equipment to China where it plans to build Rover family sedans but it also plans to start making up to 10,000 MG TF cars from next year. The TF, a sporty two-door coupe introduced in 2002, will sell for GBP18,000 to GBP22,000.


Nanjing Auto also plans to restart production of the ZT, a sporty four-door model and its station wagon version, the ZT-T. Both models sold for about GBP17,000 previously.


'They will use pretty much existing molds, jigs and tools to manufacture a car that is identical to the one they were selling. They may add new a back and front to give it a more contemporary feel,' said Alister Morton, head of communications for the Birmingham City Council who is acting as unofficial media liaison for the company. No one at Nanjing Auto was available for comment.


'Those products will tide them over for a limited lifespan while they develop new products,' Mr Morton said.


Walt Madeira, European forecast manager at CSM Worldwide, said: 'It would make sense for them to bring out an MG TF kind of roadster because it's a very niche vehicle. It has real small volume but it was a very stable vehicle for [MG Rover].'


Analysts agree those plans are probably the company's best bet, but, even if the sports cars sell well, Nanjing Auto still faces a bigger, long-term challenge of establishing itself as a brand name in Europe.


'The real key is not anything short-term. The real key is how this fits in the long-term strategy of the Chinese company for a long-term market entry into Europe,' said Nigel Griffiths, European car analyst at Global Insight.


For many Britons, the most important factor when buying a car is the brand name while the product itself and the price are secondary, according to Mr Griffiths.


'For Chinese companies, it's the need for a Trojan horse brand' such as MG, Mr Griffiths said. 'If you need to make an impact in anything other than a decade, you need to have a western-recognised brand; you can't come in with a local Chinese brand.'


But using the MG sports-car name limits Nanjing Auto to a very small part of the market, Mr Griffiths said. Also, establishing a brand for small sports coupes is radically different from doing it for the mass-market or low-priced cars, he said.


Nanjing Auto also faces a stagnant and highly competitive car market in Britain. Last year, just fewer than 1.6 million cars were produced in the country, 3 per cent fewer than the 1.65 million in 2004. Output has been falling steadily since an all-time peak of 1.79 million in 1999, government figures show. At its peak in the 1960s, MG Rover made two out of every five cars sold in Britain, but last year its market share had fallen to 3 per cent.


In Europe, the luxury and economy ends of the car market had room for growth, but mid-range vehicles faced stiff competition, said Mr Wallbank of Ernst & Young. 'It is a hugely competitive market. Anybody coming into the market has to do something different or it has to be the cheap end of the market.'


Mr Wallbank predicted Nanjing Auto and other Chinese firms could follow South Korean carmakers, such as Hyundai and Kia, which in the past five years have carved out a big share of Europe's economy-car sector. And it might not take them as long, he added.


'The Japanese took a long time to build credibility in Europe,' while the Koreans have done it faster and the Chinese may do it even faster,' he added.


Another challenge is that car buyers in Western Europe expect a lot, Mr Wallbank said. There could be a lot of people on the mainland or in other developing countries who were planning to buy their first cars but that was not the case in Europe, he said.


'Customer expectations are much more onerous. Customers are much better informed and most customers who buy a car in Western Europe have already owned several cars and are fairly sophisticated with what they want,' Mr Wallbank said.


Breaking into a car market is not just about introducing new models. Nanjing Auto also needs to establish a dealer network and has to do so quickly, according to Mr Madeira. After MG Rover was sold to Nanjing Auto, it ceased business and most dealers, who were part of bigger distribution groups, dropped the name.


'For example, a dealer may have had an MG Rover and a Honda dealership. It's not hearing from (MG Rover), so now all of a sudden they have two Honda dealerships. The other brands are taking advantage of that,' Mr Madeira said.


Finally, there is the question of what next after the TF. Mr Morton said Nanjing Auto has at most four years before it needs to bring in a fresh model. That means money - and a lot of it. He said it was not uncommon to spend GBP1 billion designing a new car these days.


'If manufacturers are changing designs rapidly to suit contemporary fashion, it's a tough one because you're in the fashion business, not the car business.'


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