By Norihiko Shirouzu
GUANGZHOU, China—Volkswagen /zigman2/quotes/206736865/delayed DE:VOW +0.77% AG and PSA Peugeot Citroën SA are considering developing China-only brands with their local partners in the country, people familiar the situation said, joining a growing trend among foreign auto makers targeting surging demand for low-cost cars.
Volkswagen is in discussions with one of its two Chinese partners about the possibility of starting a new jointly run brand, a person close to the German auto maker said.
"The talks have been going on for some time, and they are in their final stage," the person said. He wouldn't say which of VW's partners, SAIC Motor /zigman2/quotes/201442870/delayed CN:600104 -2.02% Corp. or FAW Group Corp., it is discussing the matter with, or otherwise elaborate.
Separately, Timothy Zimmerman , a senior China-based executive at Peugeot, said parent company PSA Peugeot Citroen of France is looking into an opportunity to start an additional brand for China and is discussing it with partner Dongfeng Motor Group /zigman2/quotes/202033304/delayed HK:489 -2.90% Co.
"We want to pursue this only if there is a place in the market for it, and if it is profitable," the Beijing-based executive said. He said PSA Peugeot Citroen and Dongfeng have launched a joint study group to look into the move.
Other foreign companies already have launched new brands for China. At the auto show that opened in Guangzhou this week, a range of foreign makers and their Chinese partners showcased or discussed new efforts to go after emerging middle-class consumers in China's less-developed hinterland by starting new brands.
Honda Motor /zigman2/quotes/207173990/composite HMC -1.38% Co. on Monday unveiled its first production model for the Linian brand, known as Everus in English. Honda and its joint-venture partner, Guangzhou Automobile Group Co., plan to launch the Linian subcompact sedan in mid-2011.
Nissan Motor /zigman2/quotes/208298710/delayed JP:7201 -2.27% Co.'s joint venture with Dongfeng Motor Group demonstrated a concept model at the show of its new China-only brand, Qichen. The small-car brand, whose English name is Venucia, is due to launch in 2012.
Last month, General Motors /zigman2/quotes/205226835/composite GM -6.09% Co.'s Wuling joint venture, which makes low-cost microvans, started making the first model for its China-only brand, Baojun, which it plans to start selling early next year.
Japan's Toyota Motor /zigman2/quotes/200537742/composite TM -1.26% Corp. is also looking at the possibility of its own China-only brand and is developing a first car for it, according to a person familiar with the situation.
None of the auto makers have disclosed pricing strategies for these new no-frills cars.
They are broadly aimed at members of China's emerging middle class whose annual income is now climbing above 50,000 yuan, or about $7,500, which executives consider the threshold for car ownership in China.
Executives and analysts generally believe the cars need to be priced around 60,000 yuan to compete with models from Chinese companies such as Geely Automobile Holdings /zigman2/quotes/200716015/delayed HK:175 +3.90% Ltd. and Chery Automobile Co.
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