JAC to collaborate with Giant Motors despite analyst disapproval

A new energy car produced by Chinese automaker JAC on display in Huaibei, East China's Anhui province, on Oct 3, 2016. [Photo/VCG]

China's JAC Motors is teaming up with Mexican company Giant Motors Latinoamerica to localize its sport utility vehicles, but analysts doubt the wisdom of the move said to target customers in Mexico, Central and South American markets.

Hidalgo Governor Omar Fayad announced the two companies' cooperation during a press conference Wednesday, saying that they are to invest $212 million in capacity expansion for a plant owned by Giant Motors in Ciudad Sahagun, Hidalgo, the AFP reported.

A JAC spokesperson told China Daily that they are currently strengthening technological cooperation with Giant Motors but did not confirm the investment.

The AFP quoted Giant Motors head Elias Massri as saying the company will start producing SUVs at the plant within two months, making 1,000 vehicles in the first year with the goal of making 10,000 units per year by 2021.

JAC sold 367,300 passenger vehicles in 2016, a year-on-year increase of 6.09 percent, and 27,500 of those units were SUVs.

However, some analysts believe it may not be wise to make big investments in the region if JAC aims to sell its cars to Central and South American markets.

John Zeng, managing director of LMC Automotive Consulting Shanghai, said it would be baffling if JAC would make such an investment.

He reasons that it is cheaper to export cars to those countries from Mexico than from China but JAC could have built a plant in a South American country.

Yale Zhang, managing director of consulting firm Automotive Foresight, said several other Chinese automakers had contemplated building plants in Mexico, but all of them saw it as a natural gateway to the US and Canada.

In 2016, 17.59 million cars were sold in the US and almost two million cars in Canada, much larger than Central and South American markets combined.

But Zhang said few of those automakers have made the move. The FAW tried its hand without fruition and left in 2009.

He said Chinese carmakers may find it even harder, if not impossible, to fulfill their goals now that Trump has threatened to renegotiate NAFTA and build a wall along the Mexico-US border.

Mexico is the world's fourth biggest car exporter. It produced 3.46 million cars in 2016. Of those, 2.77 million cars were exported, with three quarters of them to the US, according to local industry association AMIA.