The much hyped about joint venture partnership between Chery and Jaguar Land Rover has finally become a reality. Both sides have signed an agreement to establish an equally owned JV to sell both JLR and own brand vehicles in China. In a report appearing on Gasgoo.com (Chinese), Zeng Zhileng, director of LMC Asia Pacific Forecasting, commented that the JV would finally give Chery the power it needed to compete in the market for mid- to high-end vehicles.
"Current government policies are gradually becoming stricter, [with] the government having officially announced that it is not encouraging foreign manufacturers to establish new factories," Mr. Zeng noted. According to Mr. Zeng, Jaguar Land Rover had been eyeing a partnership with a domestic manufacturer like Chery as a way to bypass stricter government regulations for a long time now.
Mr. Zeng also believes that Chery hopes to use the partnership in order to simultaneously strengthen its brand image and boost its profits.
According to official statistics, JLR sold a total of 42,063 vehicles in China last year, growing a full 61 percent from 2010. China became Land Rover's second largest market at the end of last March and the third largest for Jaguar vehicles. Due to the country's increasing prominence in its portfolio, it makes sense why JLR would want to form a partnership with a local manufacturer.
Chery, meanwhile, can use the JV to penetrate new segments in the Chinese market. The manufacturer's previous attempts to sell higher-end models all failed to bring in significant profits. However, Mr. Zeng cautions that Chery's lack of expertise may limit its authority in the partnership with JLR. "Since Chery currently does not have a single mid- to high-end model [and] lacks significant technology for high-end vehicles, …[Chery] will not have a lot of decision-making authority," he said.
However, Mr. Zeng believes that, given the current state of Chinese manufacturers, it is essential that they take steps to enter the market for mid- to high-end vehicles. He notes that a JV partnership is a legitimate method for Chinese companies to penetrate this market. "Judging by the current ability of domestic own brand manufacturers, it is extremely hard for them to gain [a foothold] in this market," he stated.
