China's Jianghuai Automobile Group (600418.SS) has made progress in joint-venture talks with Caterpillar (CAT.N) and Navistar International Corp (NAV.N) and sees such a tie-up as key to its strategy to improve profitability and target export markets, an executive said.
Jin An, president of Jianghuai, said talks aimed at completing a joint-venture were making progress seven months after the three companies announced they intended to set up a venture targeting China's commercial truck market.
An, who was speaking at an industry conference in Beijing, said Jianghuai was open to other such alliances that could help it improve profitability by bolstering the image of its affiliated brands for consumers in China and abroad.
This will be our first joint-venture, but when the time is right, we will seek out partners, An said, speaking through a translator. We will take it step by step.
Caterpillar and Navistar said in late September that they were hoping to set up a joint-venture with Jianghuai in which the two U.S. industrial companies would own 50 percent and the Chinese automaker would hold the remainder. The partners have set a tentative target of reaching a deal by mid-2010.
Representatives for Caterpillar and Navistar were not immediately available for comment. The potential deal has been seen as a way for the U.S. companies to crack into the still-booming market for commercial vehicles in China.
Heavy truck sales in China more than doubled in the five-year period to 2008 to more than 540,000 units in annual sales. Analysts see continued strong growth bolstered by Beijing's infrastructure investment.
Unlike General Motors GM.UL and Volkswagen (VOWG.DE), which have become household names in China, foreign truck giants have made little headway over the years because their upscale models are too expensive for local trucking service operators.
An said the joint-venture with Caterpillar and Navistar would also target production for markets outside China. Jianghuai has sold 80,000 vehicles to date in markets such as Algeria, Vietnam, Syria and Colombia, mostly light trucks. The company expects to sell another 20,000 units overseas this year.
Jianghuai, which is based in eastern China, has a technical tie-up with Hyundai Motor Corp (005380.KS) that allows it to share technology for a unit that produces commercial buses. It manufactures commercial vehicles under the JAC brand and sells a minivan under the Refine brand.
A late-comer to the passenger car business, Jianghuai and other domestic Chinese auto brands would have to break out of the low-cost and low-margin part of the market to challenge established global automakers in the Chinese market such as Volkswagen and Toyota Motor Corp (7203.T), An said.
An estimated that Chinese automakers only made 20 percent per unit in profit in 2009 compared with the margins on foreign auto brands manufactured in China.
He was speaking at a conference organized by China Business Update just ahead of the Beijing auto show.
(Editing by Ken Wills)