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Toyota to Assemble More Cars in China

September 06, 2004|From Bloomberg News

Toyota Motor Corp. will sign an agreement to build a second car factory in China, increasing manufacturing capacity in a market where rivals are cutting prices to lure customers.

Toyota and Guangzhou Automobile Group will sign the accord in the country's southern city of Guangzhou today, the companies said in a faxed statement. The joint venture will have a preliminary production capacity of 100,000 units a year, according to the Chinese Ministry of Commerce's website.

Toyota is adding production and introducing new models to increase its share of China's car market to 10% from its current 3% by 2010. Volkswagen and General Motors Corp. sell more cars than Toyota in Asia's second-biggest automotive market. They have cut prices this year as demand has slowed.

"Toyota is still a second-tier automaker in China, and the new venture will help its efforts in narrowing the gap between itself and the top players," said Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing. "But the introduction of the Camry may not help the company as much as it may have done a year ago as everybody is cutting prices."

China's passenger car production fell 0.1% in July from a year ago to 171,900 units, while sales rose 3.7% to 170,000 units during the period, according to the Chinese Assn. of Automobile Manufacturers. Passenger car sales surged 76% last year to 1.97 million units.

Tianjin FAW Xiali Automobile Co., Toyota's other partner in China, said first-half profit fell 79% to 74.9 million yuan after costs rose and prices fell. The two companies build Crown and Vios passenger cars together.

Volkswagen, the largest foreign automaker in China, reduced its prices by as much as 12% in June after GM's decision to cut prices for its Buick cars and wagons by an average of 8%. Carmakers will continue lowering prices until China's vehicle costs approach those overseas, the official Xinhua News Agency said last month.

Toyota's Camry cars will face competition from GM's Regal, Mazda Motor Corp.'s Mazda M6 and Guangzhou Automobile's Accord, said Guotai Junan's Zhang.

Toyota will have difficulty gaining market share if it prices the Camry higher than 350,000 yuan, Zhang said.

Toyota's sales in China rose 23% in the first six months of 2004 after it started to produce Corollas in China in February, Toyota Senior Managing Director Takeshi Suzuki said last month. The carmaker aims to sell 50,000 Corollas this year.

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