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China auto makers are gaining traction

The Wall Street Journal (Shanghai) – Global car companies reaping big sales in China face a growing threat from domestic brands that are improving technology and gaining ground with consumers, the head of a prominent U.S. automotive-parts company said.

"Foreign players in the market will see a lot greater local competition than they have seen in the past," Roger Wood, the president and chief executive of Dana Holding Corp., said recently. The Maumee, Ohio, company makes axles, drive shafts, gaskets and engine coolers for cars, trucks and construction machinery.

"Chinese auto makers recognize the need to build more-robust vehicles that can satisfy Chinese car buyers' technological needs," he said. In parallel, Chinese consumers are displaying greater pride in homegrown brands. "There's a shift by consumers from wanting foreign brands to wanting local ones," he said.

Foreign auto makers have benefited greatly from the rapid rise in car ownership in China, experiencing faster sales growth and greater market share than domestic competitors. Foreign brands have roughly two-thirds of China's market for passenger cars, according to data from consulting company LMC Automotive. Under Chinese rules, cars manufactured in the country by foreign auto makers, such as Germany's Volkswagen AG VOW3.XE-1.11% and U.S.-based General Motors Co., GM 0.25% must be made through joint ventures with domestic companies.

China is the world's largest auto market. Car sales increased 7% last year to around 15.5 million vehicles, according to the China Association of Automobile Manufacturers.

Mr. Wood said he expects supply to outweigh demand in China. "The growth potential here in China will not be matched with the capacity being put in," he said. "There will be imbalances that will create problems along the way."

But Sanford C. Bernstein auto analyst Max Warburton said that while Chinese auto makers are trying to close the technology gap with foreign companies, he doubted they would do so soon. Most Chinese companies remain heavily reliant on foreign engineering firms for engine technology, as well as for body and suspension design, he said.

"When those experts get on the airplane back to Germany and Korea, the knowledge leaves China again," he said. Chinese companies still lack systems-integration expertise and their cars aren't as durable as foreign brands, he said.

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