Lifan Plans SKD Assembly in Ukraine This Year, Aims to Use Ukraine As Base for CIS Markets

Lifan to Use Ukraine As Base for CIS Markets

Chinese automaker Chongqing Lifan Motors aims to assemble its cars in Ukraine from semi knocked-down (SKD) kits according to vice-president Mark Timber. In a telephone interview with IHS Automotive, Timber said that Lifan aims to expand substantially in the region specifically targeting the former Soviet Union countries that make up the Commonwealth of Independent States (CIS).

Lifan will use its partnership with Ukrainian automaker Bogdan to begin assembly of its models in the country, for sale in Ukraine as well as in the other CIS countries, he said.

"We plan to make 2,000 units with Bogdan this year," he said, adding that Bogdan has substantial production capacity. "Lifan is going to invest a lot in Ukraine to raise publicity," he said, as the company needs a significant rise in brand awareness to see volume sales. Lifan only entered Ukraine in 2011, under its partnership with Bogdan which distributes the Lifan 320, 520 and 620 models. That year, Lifan announced plans to sell 750 units in Ukraine, but that target was not reached and it only managed 500 unit sales, said Timber.

Lifan's major export market is Russia and it is the success in this market that Timber aims to build on in the CIS countries. "Last year we sold 18,000 units in Russia—we were the Number 1 Chinese automaker in Russia," Timber said, "This year we can make 25,000 units in Russia. So we can make [it in the] CIS countries as [they are the] same as Russia."

SKD to Start in Ukraine in H1, CKD by H2

Lifan aims to use its partnership with Bogdan to assemble models in Ukraine for sale in the CIS markets as Bogdan has large production capacity, Timber says. It will initially start by assembling SKD models and hopes to move to completely knocked-down (CKD) kits later in the year. "So we are talking of SKD now but in the future maybe CKD," he said, speaking by telephone to IHS Automotive. "We plan to make SKD in the first half and CKD by the end of the year."

Outlook and Implications

Russia is one of Lifan's main export markets. In the first half of 2011 the automaker exported over 7,000 units to Russia (see China: 17 October 2011: Lifan Exports More Than 7,544 Cars to Russia in H1) and this rose significantly to over 10,000 units in the second half according to Timber's figure that the automaker sold 18,000 units in Russia last year. The plan to use a base in Ukraine for the CIS is a strategic plan for Lifan. The CIS countries are growth areas for Chinese automakers in general and therefore there is a spate of activity in the region as they look to expand volume sales outside of their domestic market which is seeing slower growth. So far in the first two months of 2012, Lifan has seen its exports plummet by 33% year-on-year (y/y) to just 2,894 units according to data from the China Association of Automobile Manufacturers (CAAM).

Timber has been pushing Lifan's growth in strategic growth areas outside China; in November 2011 the automaker began sales in the UAE as a base for neighbouring countries. "The UAE is a very big place to start with. We are not only talking about distributors. We are thinking of making the UAE a central warehouse for our cars in the future," said Timber in a company press release. "If customers in the UAE start to purchase Lifan cars, then other Middle Eastern countries will have no problem. We have to let the Middle East know that China wants to be here in a big way. "In addition to Russia and Ukraine, Lifan exports to markets such as Iran, Iraq and North Africa as well as countries in South America such as Brazil. In 2010 Lifan set up a wholly owned USD10-million factory in Ethiopia and assembles the Lifan 520 there.

Lifan has aggressively been developing models and parts for assembly and sale in export markets, spending CNY35 million last year (see China: 25 July 2011: Lifan Invests CNY35 Mil. in Auto Parts Export Base in Chongqing, Opens 4S Stores in Brazil, Iran, and Algeria). It also plans to build an assembly plant in Brazil with partner Effa Motor (see Brazil: 5 July 2011: Chinese Automaker Lifan to Set Up JV Assembly Plant in Brazil), and has a 40,000-unit assembly plant in Uruguay, according to its web site, which serves as a base for the Mercosur countries.

In 2011 Lifan exported 43,010 units, up 89.59% from the 22,686 units it exported in 2010, according to CAAM data. In January this year, however, exports have plummeted—falling 45.8% to just 671 units, while exports in February fell 28% y/y to 2,223 units. Total year-to-date exports are down 33.10% y/y with a total of 2,894 units. Overall, including sales in China, Lifan has sold 20,506 units in the first two months of this year, down 13.71% y/y.