Subaru Is Seeking China Production Venture

It has been reported that Subaru, the Japanese automaker known for its boxer engine and all-wheel drive technology, was looking for a local partner to set up production in China. No official statement has been given, but last month one of its directors acknowledged that having a Chinese factory is a real possibility in light of fast growing demand; meanwhile, the general manager of its largest dealership in China appears more direct and confident, when asked by the media, affirming that local production will start in two or three years, and could help lower the prices of Subaru cars and parts significantly.

As required by government regulations, a foreign company must team up with a native player in order to manufacture or assemble automobiles in China. In recent months, speculation has been mounting on who will be joining forces with Subaru. At first, Jiangling Motor, partly owned by Chang’an, was singled out by the media, but now all eyes are on First Auto Works (FAW). As FAW is currently a partner of Toyota, and Toyota owns 16.5% of Subaru, many see a perfect match here.

Yet Subaru has been tight-lipped so far, keeping negotiations behind closed doors. The extra caution it takes is understandable. After all, it had a failed marriage years ago.

Subaru was actually among the first foreign automakers to venture into China. In 1992 it started to build a version of Rex, a microcar comparable to Suzuki Alto, there in partnership with a company having military background, "Guihang Yunque." While Alto achieved huge success, the re-badged Rex became a big flop: only 12,000 units were sold before the partnership ended in 2002.

Subaru China sales soared 85% from 2008 to 35,300 units in 2009, all imported. This year it is on track to sell 50,000 units. The figures mean for many that the initial volume condition for local production is now met.

FAW is a top Chinese automaker, having wide and strong marketing as well as political networks. For it, Subaru, a name highly respected here, must be a fair suitor. However, analysts point out, there is one thing that stops both parties from making immediate commitment: Subaru is still largely a niche-market brand–although it has been attempting to go more mainstream recently, and it is by no means certain that the strong growth will continue in years to come. When Subaru’s North American factory opened in 1988, its local sales reached 165,000 units, a volume that looks far ahead of what it can realistically expect to achieve in China anytime soon.