Honda Plans to Take On Nissan With China-Only Brand

Jan. 20 (Bloomberg) -- Honda Motor Co., Japan’s second- largest automaker, plans to introduce its cheapest car in China next year as competition heats up with Nissan Motor Co. in the nation’s fastest-growing regional markets.

The car, developed by Honda and local partner Guangzhou Automobile Group Co., will have an engine smaller than 1.6 liters and will be sold under a new China brand, Li Nian, Executive Vice President Koichi Kondo said in an interview yesterday in Tokyo, where Honda is based.

China overtook the U.S. as the world’s largest automobile market in 2009, and sales growth in rural areas exceeded that of urban regions for the first time. Honda’s City and Fit compacts, both with engines smaller than 1.6 liters, face competition in China from Nissan’s cheaper Livina model, Kondo said.

“Much of the new demand last year came in smaller cars at lower prices, an area that Honda has traditionally steered clear of,” said Michael Dunne, president of Beijing-based Dunne & Co., which provides consulting services to automakers. “The new brand name allows Honda to step down into territory it might otherwise forgo” because of quality concerns, he said.

Nissan outsold both Honda and Toyota Motor Corp. in China last year, as demand for the Yokohama-based company’s vehicles surged 39 percent.

Small-Car Incentives
The Chinese government reduced the sales tax on new vehicles with engines of 1.6 liters or smaller to 5 percent from 10 percent last January. It said Dec. 10 it was raising the rate to 7.5 percent.

The government incentives reversed a trend where larger cars were in favor, Dunne said. Demand from an emerging middle class in second-tier cities for smaller cars will continue to grow this year, he said.

“The under-1.6-liter mass-market segment is really hot right now,” Kondo said. “We see Li Nian as the product that will be able to compete in this range.”

The best-selling car in China last year was the F3 sedan, made by Warren Buffett-backed BYD Co. and available with a 1.6- liter or 1.5-liter engine.

Honda plans to add on average about 100 car dealerships a year in China over the next five years, and is focusing expansion in suburbs and exurbs of major cities.

The carmaker also plans to build a new plant in Hubei province with partner Dongfeng Motor Group Co. to open in 2012 and will increase production capacity at the venture’s existing plant in the province to 240,000 vehicles this year from 200,000.

Li Nian, which means “ideal” or “spirit,” is the first original brand developed between a foreign automaker and local joint-venture company in China, according to Honda.

Honda may be disinclined to export the brand as it only collects half the profits from the joint venture and the car would compete with Honda’s own-brand cars in other markets, Dunne said.

Source;
http://www.businessweek.com/news/2010-01-20/honda-plans-to-take-on-nissan-with-china-only-small-car-brand.html?chan=autos_autos+--+lifestyle+subindex+page_top+stories