Guangzhou Motor Corp., China’s fourth-largest vehicle maker, sounded out Toyota Motor Corp. in February 1994 for a joint venture after the Japanese auto giant gave up a plan to manufacture vehicles in Shanghai.
The Chinese automaker wanted Toyota to replace Peugeot of France, which was withdrawing from China.
But Toyota’s technical experts turned down Guangzhou Motor because they did not want to make automobiles at another carmaker’s facilities.
Guangzhou Motor subsequently teamed up with Honda Motor Co. and spawned a boom in Accords across China.
In July 1994, Chinese government officials met with Japanese auto executives at a Tokyo hotel to spell out Beijing’s new car manufacturing policy.
The executives were glued to one phrase in the handout: China would not give approval to new projects until the end of 1995.
For the executives this meant they would have to find Chinese joint-venture partners in little more than a year if they wanted to get in on the rush to enter the Chinese market in 1996.
The number of potential Chinese partners was limited, due to inadequate facilities and low technical standards. In addition, Changchun-based China FAW Group Corp., the largest Chinese carmaker, and Wuhan-based Dongfeng Motor Corp., the second-largest, had already established joint ventures with Europeans.
Toyota had more of a problem because Shanghai Automotive Industry Corp., the third-largest firm, had refused a tieup, and Toyota had already given the cold shoulder to Guangzhou Motor.
The top three Chinese carmakers have a combined 50 percent of the domestic market.
The only choice left for Toyota was Tianjin Motor Corp., a midranked company that had been receiving technical support from Daihatsu Motors Co., a member of the Toyota group.
Toyota did not want to tie up with Tianjin Motor, as it was in the midst of a financial crisis caused by sluggish sales of its mainstay model, the Charade.
Toyota management foresaw difficulty if China set the rebuilding of Tianjin Motor as a condition of a joint venture.
Toyota eventually opted to accept the deal, however.
Akihiro Wada, 70, who was Toyota vice president at the time, paid a visit to Tianjin Motor’s factory and was stunned by its dilapidated condition. Employees were depressed because of the company’s poor financial condition. Wada was at a loss as to what to do.
He remembered wondering if the only way to get China’s permission was to shore up Tianjin. It nonetheless did so as it pushed ahead with preparations for a joint venture.
However, the “Toyota way” of setting up a sales network by gradually raising the rate of local car production was not an option.
The Chinese government put emphasis on nurturing peripheral industries and employment, and came up with the condition that parts manufacturers had to make inroads into China at the same time Toyota did.
Wada told authorities the project would fail unless they knew the public’s purchasing power, which would help set the production numbers.
Neither Tianjin nor local Chinese Communist Party officials would listen to Wada.
Toyota had no choice but to press on, flying blind, Wada said.
Toyota also hit a wall when it came to selecting the model to be marketed.
A local Communist Party executive refused to agree to Toyota’s plan to manufacture the Corolla, which the carmaker argued was suitable for the market in both performance and price.
The party official reportedly told Toyota: “The Corolla has already made its appearance in the world. The car you bring to China is to be a new car that has not yet been introduced.”
Toyota eventually opted to produce the Vios, a variation of the Vitz, which was also already popular internationally. According to Toyota officials, the new model was basically a version of the compact stretched into a sedan.
Some thought the Vios was not professional grade. Company executives pushed development personnel to speed up work on the sedan, knowing that if they were too slow, Toyota would not get joint-venture approval from the Chinese government.
The approval came at the end of 1999, and for Toyota, it was happy to finally reach its goal after years of struggle.
Prior to 1994, China had no clear policies for joint-venture car production.
The country decided to actively seek foreign capital for the automobile industry and first set out guidelines in 1994, calling for an annual output of more than 150,000 vehicles and growth in the car-parts industry.
The amount of foreign investment was held to less than 50 percent and non-Chinese companies were barred from heading management.
These ideas were kept in the standards revised last June.
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