Nissan looks to no-frills China brand for revival

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HUADU, China (AP) - His Chinese sedan was a disappointment. So when truck driver Xie Yanzhen needed to replace it, he turned to Venucia, a 2-year-old no-frills brand launched by Nissan and a Chinese partner.

The Chinese-brand Chang'an "doesn't work well," said Xie, who was back at a Venucia dealership in this southern city with a friend. At about 80,000 yuan ($13,000), his Venucia D50 compact sedan cost a little more, but "the engine is pretty good."

That is encouraging news for Nissan Motor Co., which wants Venucia and Chinese buyers like Xie to help drive its global turnaround.

Venucia is a leader in the latest twist in the world's biggest auto market: Chinese brands created by global automakers with local partners to sell foreign cachet at lower prices.

The trend started with government pressure on global automakers to help create Chinese brands. But some are trying to turn that into a commercial advantage.

Most ambitious are Nissan and General Motors Co. Their local brands have rolled out ultra-low-cost models to make deeper inroads into China, especially in the countryside, home to 700 million people.

GM created Baojun in 2010 with two local partners. Mercedes Benz parent Daimler AG is launching a joint-venture electric car brand. Volkswagen AG and France's PSA Peugeot Citroen have said they are looking at creating local brands. Honda Motor Co. and a local partner launched the first joint-venture brand, Linian, in 2007.

Venucia is especially important to Nissan. China is a centerpiece of the struggling Japanese automaker's plan to emphasize faster-growing developing markets. It announced an $8 billion expansion plan for China in 2011 with a local partner, state-owned Dongfeng Group.

Nissan wants to build its share of China's crowded auto market from 6 percent to 10 percent.

"Venucia is one of the key pillars of that," said Akihiro Nakanishi, brand director for Dongfeng Nissan Passenger Vehicle Co., the joint venture that owns Venucia.

The new brand's target market is urban workers and better-off rural residents who aspire to the "car lifestyle," according to Ye Lei, general manager of Venucia's business development department. One new model is planned each year and the brand is forecasting total sales of 1 million by 2015.

"This is a market that hasn't been served by joint ventures, which are too expensive, or domestic brands, which don't have good enough quality," Ye said in an interview at Venucia's headquarters in the southern business center of Guangzhou.

Beijing has avoided publicly ordering global automakers to set up local brands. That might give its trading partners grounds to accuse it of violating market-opening pledges. But industry analysts say regulators have made clear manufacturers must help create one if they want approval to expand production in China.

"It's something of an open secret by now that foreign brands have little choice but to acquiesce to the government's demands," said Bernstein Research in a report earlier this year.

Asked whether Venucia was created at Beijing's request, Nissan said Venucia was intended to be a "Real Chinese National Car by Chinese for Chinese."

GM declined to comment on what role Chinese policy played in the creation of Baojun.

Venucia launched its third model this month, a roomy, four-door hatchback called the R50X. Comparable in size to a Volkswagen Golf, it starts at 79,800 yuan ($12,600) with a 1.6-liter engine and a manual transmission. That brings it within range of Chang'an Automotive Group's similarly equipped CX30 sedan, which starts at 64,000 yuan ($10,100).

With 147 dealerships, Venucia's main marketing tactic is driving cars to towns for impromptu displays, Ye said. He said one dealer drives more than 10,000 kilometers (6,000 miles) every month doing that.

The brand might consider exporting, but its focus for now is fast-growing China, Ye said.

China's auto market has cooled since growth peaked at over 40 percent in 2009 but October sales rose 24 percent over a year earlier to 1.6 million vehicles.

Venucia sold 79,322 vehicles in the first 10 months of this year, triple the same period last year. GM's Baojun sales rose 27.8 percent in the first nine months of this year to 69,187 vehicles.

Communist leaders want auto manufacturing to create higher-paid jobs in fields from electronics to chemicals. They are frustrated by China's failure to follow neighboring Japan and South Korea in launching global auto brands.

Since the 1980s, foreign auto manufacturers in China have been required to work through state-owned partners. Beijing hoped the local partners would learn enough to launch their own globally competitive brands. A government plan in 1994 called for China to have at least three by 2010. But three years after that target, it has yet to give rise to even one.

The mandate for foreign automakers to help set up local brands, which might give Chinese partners more control over advanced technology, could help to accelerate that.

Still, success is far from guaranteed. Industry analysts say the Chinese market, crowded with global majors and ambitious locals, has little room for new brands.

"There will be a segment in the market that can absorb one or two of these brands, but I don't think it will become a mainstream development," said Ivo Naumann, a Shanghai-based analyst for research firm AlixPartners.

The added competition will squeeze China's own independent brands, which are struggling to defend their market share.

"There will be a lot of losers," said Naumann.



(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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