Why Foreign Automakers Are Launching China-Only Designs

For a short time at the launch of GM's new Baojun 630 sedan at the Shanghai auto show this week, the car was the side attraction. On a stage behind the car, two male models dressed in black performed a strange routine in which they drew car parts with their fingers in the air and then tossed the phantom pieces to one another. A ballet dancer emerged to twirl in front of a video of the Baojun 630 racing through a forest. The crowd jostled for position to snap photos not of the car, but of the showgirls standing next to it.

The Baojun 630 may never have the same iconic status in China as, say, Rolls-Royce, which had to employ bodyguards in black suits and white gloves to keep the camera-wielding throngs at bay. But GM has a more practical goal in mind. The no-frills car, based on an old Buick Excelle, sells for $10,700 to $13,800 and is the first to be launched under its new China-only Baojun brand. GM established the brand with two local partners in order to compete with low-cost domestic automakers like Geely and Chery and in hopes of doubling its China sales within five years.

GM isn't alone in this strategy. Other foreign automakers are also trying to boost their competitiveness by launching new midpriced brands for China, which overtook the U.S. to become the world's largest car market in 2009. Honda and its Chinese partner, GAC, created a brand called Everus, whose first subcompact, the S1, hit the market this month. Nissan and its partner Dongfeng unveiled a concept car at the Shanghai auto show for a new brand called Venucia, which they plan to launch in early 2012. And Volkswagen, which has had success with a China-only car called the Lavida that it introduced in 2008, is now in talks to set up a new brand in the country, as are Peugeot, BMW and Toyota.

The financial incentive for the foreign automakers seems apparent. China, after all, has a massive emerging middle class whose first car purchases are more likely to be lower-end Cherys than more expensive models like Chevrolet Malibus or Honda Accords. But analysts say other factors might be at play. For years, the Chinese government has been eager to develop Chinese brands that can compete on a global stage, and having failed to achieve that, it may be pushing foreign automakers to give its domestic car industry a leg up.

"Beijing would like to see Chinese brands dominating the streets of its big cities, not foreign brands," Michael Dunne, a Hong Kong–based auto analyst, tells TIME. "The new policy is ... to create new brands jointly owned by Chinese and foreigners, and in that regard the Chinese can consider them homegrown brands. What's interesting is this is not in response to consumers clamoring for a new brand out there. It's definitely a strategic initiative by Beijing."

In response, Johan Willems, a Shanghai-based spokesman for GM's international operations, would only say that GM developed the Baojun brand for "business reasons," as it helps the company compete in market segments in which it wouldn't have a chance with its more expensive brands. "We expect Baojun will be an appealing option for new-car buyers, especially those in China's tier-two, -three and -four cities," he said.

But even without launching new brands, foreign automakers are increasingly adapting their products and strategies for the China market, particularly on the higher end of the price spectrum. Subtle changes to design are a big part of this. At the auto show, Buick unveiled a concept model for a new SUV called the Envision — created by GM's China design center for the China market — which incorporates Chinese aesthetics into the design, like the traditional xiangyun (lucky cloud) pattern in the headlamps, fog lights, door trim, seats and tires.

Because many wealthy Chinese prefer to hire a driver and ride in the back, BMW and Mercedes added extra backseat legroom by extending their new sedans for the China market by 5.5 in. (14 cm) last year. Backseat temperature and music controls are also common features in luxury cars made specifically for Chinese customers, says Ben Cavender, a senior analyst with the China Market Research Group in Shanghai. "There's certainly a sense that they don't want ... the cars nobody wanted in other markets," he says. "They want to feel like a VIP, like they are being catered to."

Nobody caters to VIPs quite like the ultra-luxury companies. Bugatti created two bespoke Veyrons for the auto show to impress upon Chinese millionaires its superior customization abilities — buyers can choose their own colors for everything from the interior stitching to the exterior door handles and mirrors and add other small design features. (Naturally, one sold immediately.) Rolls-Royce, meanwhile, took an over-the-top China Edition Ghost to Shanghai that has a gold-plated Spirit of Ecstasy hood ornament, gold coach lines running down the side and a red interior for good luck. Judging by the near pandemonium in the luxury-car pavilion, it's safe to say Chinese buyers' aspirations lie there, not with the Baojun 630.

What was probably overlooked amid the Ferrari worship, blaring hip-hop music and Michael Jackson impersonations (sadly, true) was a prototype for a new Volkswagen electric scooter that could actually have a profound impact on the Chinese market. Designed in China, the E-Scooter weighs just 44 lb. (20 kg) and has a driving range of 25 miles (40 km) and top speed of 30 m.p.h. (48 km/h), which is comparable with lesser-quality Chinese-made electric scooters, of which 20 million are sold each year. Volkswagen plans to test the scooters in an unnamed Chinese city next year. "We can offer something a little more premium from what is already on the market," says Simon Loasby, Volkswagen's design director for China. "The reactions at the show were so interesting. People felt the brand design without it having to say VW. People say it looks like the Beetle."

For urban Chinese consumers who are growing more trend-savvy by the day, that may be exactly what ultimately matters: the ride just has to look good.