Sales choke-up slows CR-V's engine
By Wang Yu and Gong Zhengzheng (China Business Weekly)
Updated: 2004-04-13 08:45

Dongfeng-Honda, a newly launched joint venture (JV) by Dongfeng Motor Corp (Dongfeng) and its Japanese counterpart Honda Motor Co (Honda), dismissed last week the wide-spread media assumption concerning its sales channel choke-up of the long-awaited Honda cross-over vehicle (CR-V), which is set to roll off the assembly line soon.

"Although Dongfeng, as a stake-holding company, does not directly get involved with Dongfeng-Honda's daily operations, we can guarantee that the matter is not as some media has assumed," Yang Xinqiang, a senior official in charge of Dongfeng's corporate responses, told China Business Weekly.

According to Yang, the postponement has not been caused by difficulties with sales channel construction. Instead, the Wuhan-based car maker is busy putting finishing touches to the project and obtaining relevant documents from authorities for the sales of the vehicle.

"As a newly founded firm, we have to be fully prepared to make the sales of the new vehicle a success in the local market. That is why we would rather not rush into this," Duan Ran, a press official with Dongfeng-Honda, said last week.

"The postponement has nothing to do with sales channel establishment."

Source from Dongfeng-Honda's department indicated that the firm is busing setting up its own sales networks for the new CR-V.

However, in analysts' eyes, the matter is far from that simple.

"For such a CR-V product with relatively less sales potential than ordinary family-oriented cars, it is not worthwhile at all for Dongfeng-Honda to set up new sales channels. That is maybe why Dongfeng-Honda is quite willing to take advantage of Guangzhou-Honda's mature sales networks," Jia Xinguang, a senior analyst with the China National Automotive Industry Consulting and Development Corp, said.

Guangzhou-Honda is the Japanese car maker's other JV in China, with local partner Guangzhou Automobile Group. The Guangzhou JV produces the mid-sized Accord and compact Fit sedans and the Odyssey commercial wagons.

Dongfeng was reported to be negotiating with Guangzhou Automobile and Honda to form a three-party JV to sell the Japanese car maker's Chinese-made CR-Vs.

"I hope the envisioned joint venture will integrate the sales channels of Dongfeng and Guangzhou Automobile's two joint ventures with Honda," Dongfeng President Miao Wei once remarked.

Miao said: "One of the equity structure programmes for the JV which we are discussing is that Honda will control 34 per cent, and Dongfeng and Guangzhou Automobile will each have 33 per cent."

However, Guangzhou-Honda seems reluctant to share its well-developed sales networks with Dongfeng-Honda, which makes further talk about sales integration difficult.

"How to sell the CR-Vs is Dongfeng-Honda's business, with which we have nothing to do with at the time being," a press official with Guangzhou-Honda said, on condition of anonymity.

The Guangzhou-Honda JV, which started production in 1998, now has 174 franchised dealers across China. The number increased to 200 at the end of last year.

Honda is also not satisfied with a three way split in the JV.

Zhu Linjie, Honda Beijing Branch's press official, said until now, the Japanese firm had made no decision about how to integrate Honda's Chinese JV sales networks.

Law suit matters

Besides the sales channel bottleneck, Jia said that Dongfeng-Honda's slow move to unveil its new CR-V may also be associated with an intellectual property right (IPR) infringement launched by Honda against a Chinese car producer.

"The alleged IPR infringement may put Honda CR-V's sales in jeopardy in the local market. What may be even worse is that it may help promote sales of the local car maker," Jia commented.

Honda filed a piracy suit recently against a small Chinese auto maker alleging the latter had copied the design of its CR-V, a spokesman at Japan's second-largest car maker said recently.

The Japanese car maker said it had approached Hebei-based Shuanghuan Auto last September asking it to stop production of its S-RV after finding that the vehicle's dimensions and design were identical to the CR-V's.

Since 1997, Honda has filed 18 other lawsuits over piracy, copyright infringement and other violations for its motorbikes and auto parts. This is the first involving a car.

Foreign auto makers are racing to get ahead in China, where sales almost doubled last year to 2 million units, but where they face constant IPR threats.

In another case, Japan's Toyota Motor Corp last year lost a lawsuit against the Geely Group in which it accused the homebred car maker of placing a logo similar to Toyota's well-known stylized "T" on one of its sedans.

"Honda is even confronted with more difficulties than Toyota, since the automobile appearance infringement is even more vaguely defined in Chinese laws concerning IPR protection than branding protection," Jia claimed.

"And the longer the case lasts, the more loss Honda's new CR-V project may suffer. Even if Honda can win the suit and some compensation, the sales of its locally produced CR-Vs will have to endure at least short-term pain."

Honda currently imports the CR-V, which sells for around 300,000 yuan (US$36,240). It is scheduled to begin building the model locally around June for an undisclosed but lower price. It plans to sell 20,000 CR-Vs this year.

Shuanghuan's S-RV goes for less than a third of the price, starting at around 90,000 yuan (US$10,869).

Shuanghuan, which mainly supplies jeeps to the military and police and has an annual production capacity of 30,000 units, declined to comment on the lawsuit.

Also, Dongfeng-Honda's officials are reluctant to comment further on the influence of the legal case in CR-V's future sales.

Dongfeng and Honda set up the US$28-million Dongfeng-Honda JV in August in Wuhan, capital of Central China's Hubei Province.

The venture has an initial capacity of 30,000 units a year.