SHANGHAI -- Supported by profits from joint ventures with foreign automakers, Dongfeng Motor Group, is moving quickly to build cars under its own brand.
That will result in a huge waste of its capital. China's car market is too crowded. Auto sales nationwide are slumping. Dongfeng should instead strengthen what it knows best, its commercial truck business.
But Dongfeng is determined to build its own make of cars, even though it already operates passenger vehicle joint ventures with Honda, Nissan, Kia and PSA/Peugeot-Citroen.
Dongfeng plans to launch two cars in the first half of this year, a 2.4-liter mid-sized sport sedan and a 1.6-liter compact. Both are gasoline models.
That's only the first step. To build a full line of its own passenger vehicles, Dongfeng said it will spend 10 billion yuan ($1.5 billion).
Marketing these cars will be a challenge. China has more than 20 domestic automakers, and the international brands are all here. And the days are gone when double-digit auto sales were taken for granted.
It is true that Dongfeng, incorporated in 1969, is one of China's oldest automakers. And it has built a strong and profitable business building commercial vehicles. But this will not necessarily help it sell cars.
As a latecomer to the car industry, its cars will have no advantage in brand recognition over domestic competitors, let alone global players. Selling cars to consumers requires different skills than selling trucks to businesses.
Despite the market downturn, Dongfeng still posted profits of 372 million yuan ($54 million) in its commercial vehicle business in the first three quarters of 2008, down by 5 percent from a year earlier.
To shore up the domestic economy, the government has unveiled a 4 trillion yuan ($585 billion) stimulus package. The money will be mainly spent on various infrastructure construction projects.
Commercial vehicle sales will therefore likely recover faster than car sales. That means Dongfeng should make more profit investing in light trucks than in cars.