Struggling Chery calls in local help in Brazil - the week

By Graeme Roberts | 17 November 2017

Chery is merging Brazil operations with a seasoned local partner

Chery is merging Brazil operations with a seasoned local partner

Our Man in Brazil, Fernando Calmon, reported this week on an interesting development that sees seasoned local importer, assembler and distributor CAOA Group join with Chery to manage Chery's factory in Sao Paulo, Brazil. The deal is valued at around US$60m for CAOA to acquire 50% of the Chinese brand's Brazilian operations including the Jacarei plant, in the Greater Sao Paulo area; importation and sales are included.

Chery has struggled to gain traction in Brazil. It already has spent US$530m in Brazil for a two-shift, 50,000 unit annual capacity factory but the site has been drastically underutilised (estimated running at below 20% capacity) due to Brazil's recession and market slump, as well as the negative image of Chinese products. Chery currently sells the new QQ hatchback and the Celer hatch and saloon in Brazil.

Under the new arrangements, the administration of the business and operations will be the main responsibility of the Brazilian group, together with the operation of a Hyundai plant in Anapolis (160km/100mi southwest from Brasilia, the nation's capital) where Hyundai ix35, Tucson and light trucks are produced. CAOA will also handle the import of Hyundai and Subaru models. The group also looks after a dealer network for both eastern brands as well as Ford and has sold over 1.2m vehicles throughout its history.

According to the agreement, both parties will set up a joint team to conduct comprehensive depth joint venture or cooperation in the R&D, manufacturing, purchasing, sales, services and other areas. In the next few years, both parties will launch 2-3 new Chery brand models. Chery's cooperation project with Brazil CAOA will be China's largest industrial project in Brazil and the first China-Brazil joint venture. It's worth noting Hyundai runs its own importing company and assembly plant for other models so it seems like CAOA is hedging its bets should it lose its Hyundai franchise.

We also took a look at Dongfeng this week. In addition to being a JV partner for several foreign OEMs, it is a fairly successful vehicle manufacturer in its own right, with multiple brands and sub-brands in China. Its weak point is a lack of any sizable export business and exposure to the collapsing Chinese market passenger vehicle sales of Kia Motors and Groupe PSA. Dongfeng's most successful car making divisions are its joint ventures with Nissan Motor and Honda Motor. It took some years for all the necessary approvals to be rubber stamped but eventually, Groupe Renault was allowed to set up its own alliance with the Chinese state-run firm. Now, the French OEM is making plans to greatly increase its annual production towards 400,000 vehicles and then, as part of its Drive The Future plan, to 550,000, some of which will be electrified and part of a new Renault-Dongfeng brand. The larger target is presumed to include the proposed output of a JV in LCVs with Brilliance Auto.

Doggedly continuing on with its Mirai FCV and other developments, Toyota this week said a study by the Hydrogen Council - of which it is a member - suggests that if deployed at scale hydrogen could account for almost 20% of total final energy consumed by 2050. This, it is claimed, would reduce annual global CO2 emissions by roughly 6 gigatons compared to today's levels, and contribute 'roughly 20% of the abatement required to limit global warming to two degrees Celsius'.

China looks to be loosening up its one-sided rules a bit, at last. The country plans to gradually reduce import tariffs on fully assembled vehicles from the current 25%, according to local reports citing a statement released to the press by the country's foreign ministry. The statement is also reported to have confirmed China's plans to launch a pilot programme by June 2018 to relax foreign ownership restrictions on companies involved in making new-energy and special-use vehicles in established free trade zones (Tesla is planning a plant at a free trade zone in Shanghai). No coincidence, I'm sure, the statement was released to the media during US president Donald Trump's recent visit to Beijing.

You do not normally associate a large, five-door, V6 engined Grand Tourer with the Kia badge. Now you can. The brand launched its new Stinger to UK media this week, leading off with the flagship version. It's hardly likely to lure Audi and BMW brand snobs but it's a very good product that should attract some new customers to Kia, and gives dealers willing to sell it a fine 'halo' car (and a nice new ride for the dealer principal). Volume targets are sensible and I look forward to seeing how it does in this brand-obsessed market of ours.

Have a nice weekend.

Graeme Roberts, Deputy Editor, just-auto.com