In bid to compete, luxury Japanese brands go local

The Acura concept SUV-X debuted at the Shanghai Auto Show in April. A locally produced version is expected in early 2016. Jing Wei / for China Daily

Two of Japan's top automakers are planning local production of their premium brands in the hope of grabbing a share of a segment long dominated by German manufacturers.

This month Honda signed an agreement with its joint venture partner Guangzhou Automobile for local production of the Acura.

The first made-in-China Acura, expected to roll off the production line in early 2016, will be based on the concept SUV-X that debuted at the Shanghai Auto Show in April, according to the agreement.

Last year Nissan announced plans for local production of its Infiniti luxury brand at a new $315 million facility in Xiangyang, Hubei province, with the first vehicle expected to roll off the line in 2014.

"Local production should be the only choice for Japanese luxury brands if they want to have a foothold in China in the future," said Cui Dongshu, deputy secretary-general of the China Passenger Car Association.

Although Japan's largest automaker Toyota has no publicly announced plan for producing its Lexus line in China, Cui said it "cannot hold the line in the short term, especially after its Japanese competitors start local production".

"To produce vehicles locally is the most feasible way for any brand to improve its competitive edge. If any of them is eager to greatly increase market share, they need to take fast steps toward localization," said Cui.

Statistics show that last year Acura sold only 2,300 imported vehicles in China, far short of steps toward its sales target of 100,000 units in 2020.

Infiniti has set a goal of delivering 200,000 units in 2020. But its sales declined 16 percent in 2012 from a year earlier to 16,000 units, one-tenth of its total global sales.

Lexus showed better performance as its sales grew 16 percent to 60,636 units last year, but it is still far outperformed by the three German luxury brands - Audi, BMW and Mercedes-Benz - which together have 75 percent of premium segment.

Last year, Audi alone sold 407,380 vehicles - both imported and locally produced - while BMW delivered 313,638 units and Mercedes-Benz sold 207,099.

Audi celebrated the delivery of its 2-millionth car in China - an A6L - on July 25 at its new factory in Foshan, Guangdong province.

Statistics show that in the past five years, local production capacity by the German brands has quadrupled in China.

The large number of locally built models helped make China the largest single market for both Audi and BMW.

Namrita Chow, a senior analyst at consulting firm IHS Automotive, agreed that local production could help put Honda and Nissan on more equal footing to compete with the German giants.

But she added that Japanese brands need to accelerate localization plans as a number of automakers from other countries already have similar initiatives.

General Motors and its Chinese partner SAIC broke ground on a new 8-billion-yuan plant in Shanghai in June that has a designed capacity to make 160,000 Cadillac cars annually.

Bob Socia, president of GM China, said the US automaker will bring Cadillac's entire portfolio to China, adding a locally produced model each year through 2016.

GM projects that annual Cadillac sales in China will triple to 100,000 units by 2015 and its share in the luxury segment will grow to 10 percent by 2020.

Ford also said it is considering local production of its Lincoln brand in China.

Jaguar Land Rover signed an agreement with Chery last March to set up a joint venture producing its namesake Jaguar and Land Rover vehicles, its first manufacturing base outside the UK.

Jia Xinguang, an independent auto analyst in Beijing, said "it is a reasonable consideration for JLR and shows China's strategic importance in the British company's long-term global development".

JLR's sales in China surged 71.4 percent to 73,347 units in 2012 as the country surpassed the UK to become its top market in the world.

Volvo Car Corp, now owned by Geely Group, is building plants in Sichuan, Hebei and Heilongjiang provinces to locally produce models including the S60L and V40. The first is expected to roll off the production line in Chengdu this year.

Volvo has announced that local production could boost its China sales by 20 percent a year to 50,000 units in 2013.

Honda plans to produce another premium model at its joint venture with Dongfeng Motor Corp even as it begins production of Acura SUVs in Guangzhou.

The model built by Dongfeng Honda will also be a premium SUV.

Consulting firm McKinsey & Co said in its annual report that China is expected to surpass the US as the world's largest premium car market by 2016 with sales of more than 2.3 million units that year and 3 million in 2020.

It said that China's luxury vehicle sector has raced ahead at 36 percent average annual growth over the past 10 years.

Though growth slowed sharply this year due to the government's curb on public spending, analysts said the luxury segment still has great potential with the rising income of residents and surging demand in rapidly developing lower-tier cities.