Shanghai, May 30 (Gasgoo.com) Chinese automakers are moving early stages of business into the South American market via both local production and exports, but an industry analyst has given them a word of caution.
In mid-May, Lifan Industry Group, a Chinese motorcycle-manufacturer-turned-automaker, officially launched its Lifan 520 model in Peru. The family sedan runs on either petrol or compressed natural gas (CNG), which answers the local government's call for gas-powered vehicles. The current Lifan 520 is mainly used as taxies and has been appropriately modified for the local market. By cooperating with local importers, Lifan aims to be the largest Chinese car brand in Peru by the end of this year.
Also in early May, China's largest home-grown automaker Chery Auto started mass production in Uruguay, another country of the Andean Community. The Chinese automaker signed a joint venture agreement with Argentina's SOCMA Group (Franco Macri), with Chery to hold 51 percent shares.
Chery is also the first Chinese-branded car being assembled on-site in South America. Besides the two companies, other Chinese automakers like Geely, Great Wall and Hafei are also studying the possibility of starting local production after they'd exported cars to the South America.
However, an industry analyst warned Chinese automakers of the investment risks in the growing market.
"Chinese automakers had better wait for a while to enter the Latin American market, though it's really an excellent testing ground," said Guido Vildozo, senior market analyst of Global Insight.
"The last few years have been very promising, but don't assume the status quo will hold and growth will continue at this pace; The MERCOSUR entry strategy demands flex-fuel engines and on-site production," said Mr. Vildozo during the Global Automotive Conference in Shanghai on May 27. He has been doing research on the South American auto market for over seven years.
He also suggests Chinese automakers steer away from competing head-on with well-established players like Fiat and VW in the main market of Brazil. "Enter when quality can be offered to the consumer. Hyundai took ten years to recover from poor-quality image," said Mr. Vildozo, adding that "The Andean Community is ideal as a launch pad for entering the region, but exposure to political volatility is eminent -- best to wait for now."