FOCUS: Honda targets China's nouveaux riches

Asian Economic News, July 9, 2001

GUANGZHOU, China, July 4 Kyodo

(EDS: SECOND OF A THREE-PART SERIES ON JAPANESE MAKERS IN CHINA PRIOR TO ITS ENTRY INTO THE WTO)

Honda Motor Co. wants to grab a bigger chunk of China's fast-growing car market, now that the country seems poised to join the World Trade Organization (WTO).

One way Honda aims to achieve that goal is by selling luxury car models to China's fast-growing class of nouveaux riche.

In April, the first 3000 cc Accord rolled off the assembly lines of a factory run by Guangzhou Honda Automobile Co., a joint venture between Honda and Guangzhou Automobile Co. of China.

The new model, which went on sale later in the month for 348,000 yuan, is the most luxurious edition of the popular Accord series.

''We aim to get a market share of 10% in this rapidly growing market,'' said Guangzhou Honda President Koji Kadowaki.

Honda is one of many Japanese manufacturers in China which are in the process of bolstering their production bases and sales networks, while taking advantage of the country's cheap labor.

The factory had previously been operated by PSA Peugeot Citroen of France. But it recently scrapped its joint venture with Guangzhou Automobile in the wake of severe price competition.

Honda, taking over the partner status from the French carmaker, had assembled 50,000 Accords as of March this year after the launch of mass production in the factory in March 1999. Honda plans to produce and sell some 50,000 Accord models this year alone against 32,000 last year.

Kadowaki says that despite China's low labor costs, the retail prices of Accords produced at his plant are higher than those of corresponding models in the U.S. market, due to the factory's small volume. The 2300 cc model retails for 298,000 yuan.

Added to that is a 5,000 yuan surcharge for customers in Beijing

to cover the cost of transporting the vehicles to the capital.

Even so, the 2300 cc model, which accounts for about 80% of cars produced by Honda in China, is a hot seller, even despite the fact most Chinese customers pay for their vehicles in cash, according to Kadowaki.

''We are targeting the nouveaux riches, or those who operate private enterprises, as potential buyers,'' said Kadowaki, adding that these potential customers number around 600,000. ''All the 5,000 3000 cc Accord models for sale this year have already been reserved.''

Once China enters the WTO, it will be obliged to cut tariffs on car imports, exposing foreign and Chinese automakers in the country to an onslaught of competition from overseas.

An industry analyst at a Chinese government-affiliated research institute warns that the Japanese automakers could be the most vulnerable in the more competitive environment.

''The Japanese carmakers lag behind U.S. and European companies in the Chinese car market, he says. ''It is uncertain whether Japanese carmakers here will perform as well as they do in the U.S. and European markets.'' (One yuan equals about 15 yen)