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German luxury car producer BMW is looking for more suppliers in China to increase local content of its sedans as part of cost-cutting efforts.
"We will do our utmost to collaborate with our global and local partners to establish strong supply networks in China to improve our competitiveness (in cost)," said Heinz-Juergen Preissler, president of BMW's joint venture in Shenyang, capital of Northeast China Liaoning Province.
The joint venture, with Hong Kong-listed China Brilliance Auto, will need a total of at least 100 suppliers in China at the beginning of 2005, Preissler said.
BMW Brilliance now has 30 suppliers in China, in which the vast majority are joint ventures between the German automaker's global suppliers and local partners, according to Preissler.
The joint venture is evaluating another 50 suppliers in China, he said.
"Our qualified suppliers in China could engage into BMW's global purchasing networks. And this will increase their volume and enable them to be competitive in prices, and finally benefit our joint venture," Preissler said.
"But as a premium car producer, we have more pressures to increase local content than players in the lower segment because of our smaller production volume and stricter quality requirements than them."
The joint venture, which started to assemble BMW 3 and 5 series sedans last year, plans to increase annual output to 30,000 units in the medium term.
It sold 5,000 sedans during the first five months of this year.
"I could not tell you when our local content rate will reach 50 percent or 60 percent but we are checking quality of our local suppliers every day," Preissler said.
The current local content rate of BMW sedans made at the joint venture, including the 318i, 325i, 520i, 525i and 532i, remains almost negligible.
China's newly-launched auto policy has cancelled requirements that local content rate of all cars made in China must start with at least 40 percent and increase to 60 percent in a year and to 80 percent in two years in line with the nation's commitments to the World Trade Organization (WTO).
But the new policy, issued a month ago, has new stipulations that drive foreign automakers to enhance local content of cars made in China.
According to the new policy, the following forms of key component imports to assemble automobiles in China will be treated as completed vehicle imports:
Engines and auto bodies;
Engines and any three or more of a combination of transmissions, driving axles, driven axles, chassis, steering systems, braking systems and air condition systems;
Auto bodies and any three or more of a combination of transmissions, driving axles, driven axles, chassis, steering systems, braking systems and air conditioning systems;
Any five or more of a combination of transmissions, driving axles, driven axles, chassis, steering systems, braking systems and air condition systems.
Under its WTO obligations, China will slash its tariffs on completed vehicles and component imports to 25 percent and 15 percent respectively by the middle of 2006.
"However, worries remain with customers about the quality of BMW cars made in China if our local content is enhanced. This is prejudice!" Preissler said.
"There's no compromise on quality for us, although our local content will rise."
Zhang Xin, an auto analyst with Guotai & Jun'an Securities Co, said: "High local content equaled low quality in the past. Customers' attitudes could not be altered easily, although things are getting better with the advancement of China's component sector."
"High local content is a double-edged sword for foreign automakers, especially those of luxury sedans, such as BMW and Mercedes-Benz."
Analysts say the other reason for European automakers to enhance local content in China is the strong euro.
Other European automakers, such as Volkswagen and PSA Peugeot Citroen, also vow to raise their local content in China significantly to minimize pressures from the strong euro.
Volkswagen, the biggest foreign automaker in China which sold almost 700,000 cars in the nation last year, plans to increase its average local content to 80 percent within the next two to three years from some 60 percent at present.
(China Daily July 5, 2004)
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