AUX driving into auto sector
By Gong Zhengzheng (China Daily)
Updated: 2004-02-25 09:56

AUX, a privately-owned home-appliance maker on the Chinese mainland, plans to invest 8 billion yuan (US$966 million) over four years to produce vehicles in the world's fastest-growing automobile market.

The company, based in Ningbo, in East China's Zhejiang Province, said on February 24 in a statement it plans to manufacture 450,000 vehicles annually by 2008.

The company paid 50 million yuan (US$6 million) in October to acquire a 95-per-cent stake of Shenyang Shuangma Automobile, an ailing light-duty truckmaker in Northeast China's Liaoning Province.

AUX plans this year to launch a sport utility vehicle and a pick-up. The company's sales target is 20,000 units for each vehicle.

The vehicles' retail prices will range from 61,800 yuan (US$7,460) to 83,800 yuan (US$10,100).

AUX also plans to produce a 2- to 3-litre sedan next year. It is expected to cost between 120,000 yuan (US$14,500) and 150,000 yuan (US$18,100).

"Competition in China's auto market is far from being saturated, and there are a lot of opportunities for us," company officials said.

AUX is one of several profit-starved Chinese home appliance firms steering into China's lucrative auto industry.

Greencool, a refrigerator producer in South China's Guangdong Province, merged with Yaxing, a busmaker in East China's Jiangsu Province, at the end of last year.

Bird, a mobile phone company based in Ningbo, has announced it will begin producing cars in Jiangsu Province this year.

"This is a very normal phenomenon, because profit margins in the home appliance sector are much lower than those in the auto industry," said Liu Shijin, an industry expert with the State Council's Development and Research Centre.

The average profit margin in China's home appliance sector is less than 5 per cent; in the auto sector, it is between 10 and 20 per cent.

Automakers producing high-end sedans in China enjoy profit margins in excess of 30 per cent.

"The auto industry is a new, good profit-growth engine for home appliance makers," Liu said.

"Conditions in China's auto industry will be comparable with those in the home appliance sector over the next several years, due to increasingly fierce competition as more players enter the market."

Profits in many segments such as colour televisions and air-conditioners of the home appliance sector have shrunk in recent years since the government opened the sector wider to domestic and foreign companies.

China has 120 automobile plants. Their combined output last year surged 35 per cent to 4.44 million vehicles.

Zhang Xin, an auto analyst with Guotai and Jun'an Securities, said he is not optimistic about the prospects of home appliance makers rushing into the auto industry.

"AUX's plan appears to be a little bit grandiose. The auto industry is typically a capital- and technology-intensive sector. Newcomers will face greater difficulties than well-established automakers," Zhang said.

AUX, established in 1994, has 13,000 employees and 4.5 billion yuan (US$543 million) in assets.

Despite entering China's auto industry, the company will not shelve or delay plans to expand its air-conditioner and mobile phone businesses.

AUX aims to increase its annual air-conditioner sales to 7 million units within five years. It currently sells 2.5 million units.

AUX also expects to be producing 30 million mobile phones annually within five years.

AUX plans within three years to open 30 branches and build three manufacturing bases abroad to increase its annual overseas sales to US$300 million.

AUX expects its sales will grow by at least 50 per cent annually, to hit US$8 billion, within five years.

The company also plans to help two of its subsidiaries to list domestically and in Hong Kong, and to acquire an existing listed company within three years.

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