Chapter 1250 – New car model authorization
Li Mingde reported the piece of good news to Feng Yu, telling him that their sales issues in the US and Europe are solved. Toyota had implemented countermeasures, but they are still badly affected. Their profits this year will be much lower than expected.
But Feng Yu felt things are not so simple.
Feng Yu is not worried about Toyota retaliating against them. He is not worried about facing any companies globally. Still, if all the automobile manufacturers join forces against Songjiang Motors, Bing City Machinery Manufacturing Group will be badly affected.
Feng Yu was not worried for nothing. The next day, Li Mingde called to inform him of a piece of bad news.
Toyota and FAW have entered another joint venture and authorized them two new models in return for a sum of money.
FAW is not stupid. They insisted on shorter contract duration. These two models can only bring in slightly more than ten years of profits for Toyota. After that, this joint venture company will become a subsidiary of FAW.
This condition is not to Toyota’s advantage. It’s equivalent to them selling automobile manufacturing technologies to this joint venture company and helped FAW to improve their technologies. Although Toyota will get a cut of the produced cars’ profits, it is much lower than their joint ventures in Europe and the US.
Toyota had cooperated with FAW to increase its brand awareness and market share in China.
After that, they will export their cars to China to increase their profits. It would be better if they can increase their shares in the joint venture company. If not, they can go into more joint ventures with other companies.
But at this time, the top leaders of China stopped new joint ventures. China’s automobile industry will not allow any more foreign investors to set up joint ventures.
This is also because of Feng Yu. He told the higher-ups about the pros and cons of such joint ventures with foreign investors. If these joint ventures appear every few years, what’s the point of negotiating those contract terms? When the earlier contract ended, and a new joint venture appears. The market will still be full of foreign brands.
Suppose the manufacturers really want to enter into a joint venture. In that case, the other party must offer their technologies for the Chinese company to develop its own brand of vehicles. If they use those foreign brands, Chinese manufacturers will still be without their own brands. They will still be in the same situation after the contract ends in twenty years.
The higher-ups felt what Feng Yu said made sense, but they still need to discuss and research this. So, they temporarily suspend foreign joint ventures until they have a conclusion.
Nevertheless, Feng Yu had achieved his aim. This will raise the barrier for foreign brands from entering China, although they have already entered.
Feng Yu thought the Chinese automobile manufacturers will start their own brand and cars after getting the higher-ups’ hint. The higher-ups also hinted to them that if their cars’ quality is good, the government will support them by purchasing their cars.
The civilians always have this idea that government official cars are good cars! Just like the domestic produced Hong Qi, jeeps, and Santana. These are all used by the local governments and are considered good cars by the people.
The government procurement of cars will help these Chinese companies and is a form of marketing.
The higher-ups are doing their best to help China’s automobile manufacturers, but they overlooked Toyota’s strategy. Based on their current contract, Toyota needs to provide new car models to the joint venture companies. The original plan is to introduce new models two years later. But now, they are bringing it forward.
To FAW, producing joint venture cars is much easier as the technologies are developed and require lesser funds. FAW will need to invest a large sum in developing their own car, especially for the crash test.
This is not the end of it. Other Chinese manufacturers’ joint venture companies have also gotten new car model authorizations. These new models have all been imported models in the past.
These models are quite popular in China, and after they can be produced domestically, the price will drop slightly. Many people know the cars cost at least three times more with the import duties. Still, after it is produced by joint ventured factories, the profits will be higher without import duties.
The Chinese automobile manufacturers have two paths in front of them. The first is to produce these joint venture cars and get higher profits. Although one-third of the profits will go to foreign investors. The other path is to develop their own brand of vehicles. This requires a large number of funds and needs to give up the high profits from their joint ventures.
The profits are not a small amount. Many cars’ profits can reach up to 100%.
These joint venture manufacturers have newer models now, and it ranges from mid to low range cars. After Li Mingde heard about this, he immediately felt troublesome.
They cannot stop manufacturers from producing joint venture cars as their main shareholder is still the State. Their profit belongs to the country, and the higher-ups will not be pleased if Li Mingde and Feng Yu continue to suggest or talk bad about the joint venture cars.
What’s wrong? Your private company can make money, and you don’t want our State-owned enterprises to make money? Didn’t you claim to have better technologies? What’s there to be afraid of?
Furthermore, the Chinese manufacturers’ technologies will be upgraded with the new model authorization.
The higher up’s reply is they will use the profits from selling joint venture cars to develop their own automobile brands. If not, where are they going to get the research funds?
When Feng Yu knows about this, he also has a headache. This had happened in his previous life. If it was not for Li Dafu’s successful company, China would not have its own automobile brand.
Hong Qi is still around, but no one is interested. Its technologies are outdated, and exterior designs are ugly. Its internal fittings are also not good and have poor performance. Although it is selling at low prices, not many people are willing to buy it. It is also hard to find people to repair this model.
All cars will breakdown due to wear and tear. Even if it did not breakdown, it must still be sent for servicing annually. That’s why after-sales services are very important. Songjiang Motors have lots of servicing centers, and many private car repair shops can service Volkswagen, Toyota, Honda, Ford, etc.
But SAIC and Hong Qi repair centers are rare, and there are more van repair shops.
This is a vicious cycle. The domestic brands will be slowly obsoleted. In Feng Yu’s previous life, Hong Qi had introduced a concept car worth 5 million RMB to showcase its latest technologies. But their cars are still not selling well. FAW’s most profitable models are still Toyota and Volkswagen.
“Manager Feng, should we reveal those joint venture cars’ real cost and force them to lower their prices?” Li Mingde asked.
Feng Yu shook his head. This will be too evil, and it will harm the State’s profits. If they do this, Songjiang Motors will be the common enemy of the whole country.
Feng Yu needs to come up with another solution.
