Developments by JAC Motors and Chery ahead of the start of production next year
With an eye on the fourth largest automotive market in the world, Chinese vehicle manufacturers have set about establishing production facilities in Brazil. These companies were operating in the country already on the import side, but with only slightly more than 1% of sales. By manufacturing inside Brazil, the Chinese OEMs aim to expand their businesses without being limited by import quotas imposed by the government’s Inovar-Auto programme. Both JAC Motors and Chery have ambitious plans for the light vehicle segment.
For such companies, the decision to build vehicles in Brazil represents an important step towards internationalisation. Despite being an emerging economy, Brazil has a well-established and traditional automotive industry with all of the major companies present.
The nature of the local market lies somewhere between that of emerging economies like India and China itself, and European nations. It consists predominantly of vehicles at the simpler end of the spectrum, but there is growing interest in both more sophisticated technological content and stricter laws on safety and emissions.
The most significant investment to manufacture Chinese vehicles in Brazil is by JAC Motors, which is pouring one billion reais ($460 million) into the construction of a production unit in Camaçari, Bahia, in the northeast of the country. When put into operation in late 2014, the plant will have the capacity to produce 100,000 vehicles and 10,000 small trucks with up to 3.5 tons of cargo capacity.
The 75,000 sq. m plant will be built on 650 hectares, enabling future expansion and the installation of 12 components and services suppliers. So far, only two of those partners are confirmed: Usiminas and Valeo. The first will supply steel plates and the other will deliver electricalcomponents. The remaining agreements should be closed by the end of 2013.
It is likely that JAC will extend some contracts it already has in China to Brazil. Back at headquarters, Delphi provides components for electronic injection, Bosch delivers ABS brakes, Continental produces rubber parts and Visteon, the panels. In Camaçari, the plant will also make use of companies supplying Ford, which for ten years has had a plant in the same city, where it currently produces the EcoSport. The prediction is that the JAC Brazilian site will involve 3,500 personnel and 10,000 indirect jobs.
This Chinese venture is led by a Brazilian, Sergio Habib, who is president of SHC Group, a major distributor of vehicles which has dealerships in various areas and was responsible for bringing Citroën to the country 15 years ago. Habib started importing and selling JAC vehicles in Brazil in the first half of 2011, having requested that the company’s headquarters make more than 200 adaptations in order to overcome the distrust of Brazilian consumers regarding the quality of Asian vehicles. Sales of models tailored to local tastes were launched extravagantly with the simultaneous opening of more than 40 dealerships on the same day, plus a large investment in advertising. The vehicles were offered with six years of warranty, the longest in the Brazilian market at that time.
It did not take long for Habib to build trust with key executives in China, and just months after the sales launch SHC and JAC announced a partnership for the construction of a domestic plant. The joint venture is under more Brazilian than Chinese control; only 34% of the investment will come from the vehicle manufacturer’s headquarters. “They will not necessarily contribute with money, but with the transfer of technology. An example of this is the design of the first Brazilian vehicle of JAC”, says Habib.
According to SHC’s president, this model will be completely new and therefore ideal for Brazilian tastes as well as the energy efficiency rules of Inovar-Auto. But the category in which the new model will initially compete for market share has not been revealed. It is expected that, in the medium term, four models will be produced: a small sedan; an SUV; a hatchback; and a crossover version. The first release is likely to be priced under 40,000 reais and compete for the entry segment, for which the Chinese vehicles are most suitable. The engine will be dual fuel with flexible technology, capable of running on ethanol, gasoline or a mixture of these two fuels in any proportion.
The vehicle development is being led by a Chinese team with important contributions from South Korea, where a partner of JAC is working on the suspension system, plus Italy, where the style centre is based, and – of course – Brazil. Habib is closely monitoring the project evolution and making suggestions to improve the model. The development is close to completion and will be ready in about four months’ time after validation testing.
When domestic production starts, the vehicles’ engines will be imported from China, since the initial phase of the project does not include the manufacture of propellers and transmissions. Habib confirms that eventually the plant will be able to carry out the entire production process, including stamping. The centre for technological development at the industrial complex will have as its first challenge the design of a flexible engine with direct fuel injection. The plant will have acoustic and emission control of pollutants labs, a test track and a training centre. Habib explains that the goal is to bring more competitive vehicles to the domestic market.
The industrial vice-president of JAC in Brazil, Tarcisio Telles, says the company is currently completing the excavation for the early stage of the foundations. “We plan to open the unit in 2014, starting the pre-series production and stockpiling for commercial launch in early 2015,” he states. At the laying of the cornerstone in late 2012, the company marked the event by sealing beneath the earth a JAC J3, one of its vehicles currently sold in Brazil – a ‘time capsule’ for the future and a sign of intent to produce JAC vehicles in Brazil for a long time to come.
In 2011, Chery announced an investment of 869 million reais to build a manufacturing plant with production capacity of 150,000 vehicles per year. The facility is under construction in Jacareí, São Paulo – one of Brazil’s centres of vehicle production. An additional investment of 152 million reais has now been made. The company has also decided to begin ACTECO engine production, although this operation has no investment or installation location so far. These aspects will need to be confirmed shortly because the ideawas to have the powertrain manufacturing facility up and running at the same time as the vehicle assembly line.
However, the construction of Chery’s manufacturing plant has been delayed by the slowness of the Brazilian government to announce the details of Inovar-Auto. “There was a dreary period, before the new automotive regime was defined, in which the government increased the tax of imported vehicles, but had not yet announced what the rules would be,” says Luis Curi, CEO and commercial vice-president of Chery in Brazil. Moreover, the earth moving and land piling took longer than originally planned because conditions were other than described by the initial assessment.
In the two years since construction began, the plant has advanced in stages. The company brought the entire metal structure from China, and with the building that will house the unit now ready, the company can begin the installation of equipment, which also originated in China. “We did this as a matter of availability and price, since we bought a larger volume to equip manufacturing plants that are under construction in China, too,” explains Curi.
Curi estimates that the plant will begin operations in April 2014. The first vehicle to be produced will be the compact Celer, in hatchback and sedan versions. Between the endof next year and the beginning of 2015, the unit will then begin to assemble the QQ. Both models are already known in the Brazilian market. The latter is one of the cheapest in the country, currently sold at 19,900 reais. The company will also develop a subcompact especially for the Brazilian market, which will only come online between 2017 and 2018. The model design is known as S18.
Chery is also working on identifying parts suppliers for its Brazilian assembly lines. The company has approved about 25 companies as potential partners, but only closed six contracts so far. The vehicle manufacturer has already chosen suppliers for stamping, bumpers, wheels and cables. “The negotiation is confidential. The process is delicate due to a strong demand by Chery that the component costs are within the initial goal,” explains Curi.
After the beginning of local operations, the Brazilian plant will serve as the basis for Chery’s exports to other countries in South America. The aim is to export 10% of total production as early as 2014, the year in which the plant is expected to produce 30,000 vehicles. As production increases, the company intends to raise the percentage of vehicles exported to 25% by 2017.