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Renault gets full access to auto market with Dongfeng JV deal
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Renault SA clinched full access to China’s auto market yesterday by sealing a joint venture agreement with state-owned Dongfeng Motor Group in Wuhan, a city fast shaping up as China’s own Detroit.
Nine years after the two companies first announced plans for the joint venture, they finally inked a US$1.3 billion 50-50 partnership to introduce the French carmaker’s own locally assembled models in the world’s biggest auto market.
The deal allows Renault to fully tap demand in China, something it has been unable to do until now because of the lack of a strong local partner. China requires all foreign automakers to have a local partner to be allowed to produce cars in the country.
To build a Chinese presence, Renault has been forced to rely on imports from South Korea. Now with Dongfeng, it will invest 7.76 billion yuan (US$1.28 billion) to build a factory in the central city of Wuhan, with the first car due to roll off the production line in 2016.
Investment boon to Wuhan
Renault, which has a long-standing alliance with Japan’s Nissan Motor Co with whom it shares technology, plans to make 150,000 cars a year in Wuhan and set up a jointly run network of retail stores.
The carmaker’s investment is a boon to Wuhan, located about 700 kilometers west of Shanghai and where the Yangtze and Han rivers intersect. The city of 17 million, including its surrounding suburbs, is home to Dongfeng, China’s second-biggest automaker.
The Wuhan government is aiming to transform itself into a major automotive manufacturing and a logistics hub in China by attracting global automakers and their Chinese partners to open shop, which some say has turned the city into a dust-ball due to the frenzied construction activity.
Thanks to its central position and its rail, road and waterway networks it is better-positioned than other cities to become China’s Detroit — minus the bankruptcy, said Peng Zhimin, a regional economics researcher at the Hubei office of the Chinese Academy of Social Sciences who advises the provincial government.
Peng sees Wuhan as a combination of Detroit, home of the US auto industry, and Chicago, North America’s transport hub.
Headquarters of joint ventures
“Wuhan has a reputation of being the Oriental Chicago. The city’s developed transportation and logistics systems give it an advantage,” Peng said. “We can easily deliver vehicles and auto components via the Yangtze River to consumers in Shanghai, for example.”
In addition to Renault, Wuhan is also home to the headquarters of Dongfeng’s joint ventures with Nissan, Honda Motor Co and PSA Peugeot Citroen. Honda, Dongfeng and Peugeot also assemble cars in or around Wuhan.
The city, which has the capacity to produce around 1 million vehicles a year, is aiming to boost that to 3 million by 2016. Much of that planned capacity boost will come from Renault’s joint venture with Dongfeng and other global automakers such as Peugeot, which may get a sizeable capital injection from Dongfeng.
The French carmaker’s venture will also benefit Nissan, which has been operating in China in a joint venture with Dongfeng since the early 2000s. Japan’s second-biggest carmaker has two manufacturing centers within a 470-kilometer radius of Wuhan in the cities of Zhengzhou and Xiangyang.
“Between Renault and Nissan in this three-city triangle of auto-manufacturing operations, we plan to use common vehicle underpinnings and major parts,” a senior Nissan executive in Yokohama said, refusing to be named because he is not allowed to speak to the media.
“That allows us to make huge cost savings and our scale would allow us to bring competitive parts suppliers to this region.”
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