Post by UKIPA Holdings, LLC on Jan 25, 2015 19:37:49 GMT 4
Chinese Car Makers Struggle to Lure Buyers
Poor Quality, Uninspiring Marketing and Inefficient Industry Structure Plague Chinese Auto Makers.
BEIJING—With growth slowing, and foreign manufacturers gaining share, many of China's auto industry players could face extinction.
Some Chinese car makers are looking to the Beijing auto show, which opens to the media Sunday, as a chance to fight back by forging stronger bonds with Chinese car buyers through branding or woo them with popular products.
Zhejiang Geely Holding Group said Friday it was scrapping its three separate brands—Emgrand, Gleagle and Englon—in favor of a single Geely brand. Chairman Li Shufu said multibrand strategy had stretched Geely beyond its capabilities by forcing it to develop vehicles in three different categories.
SAIC Motor Corp.'s MG brand, Anhui Jianghuai Automobile Co. , or JAC, and Chongqing Lifan Industry Group Co. will each release a compact sport-utility vehicle, which is increasingly popular in China. Great Wall Motor Co. will launch its H8 SUV, which had been delayed over quality concerns.
These companies are hoping to persuade car buyers such as Ying Guohua, a 49-year-old self-employed Beijing resident, to remain loyal to Chinese brands. Mr. Ying used to drive a Zhonghua, a brand once owned by BMW 's China partner Brilliance China, that cost him around 180,000 yuan, or $29,200. "It wasn't really what I expected," he said. "Overall, it was aesthetically appealing, but it just didn't feel sturdy when I drove it." He upgraded to a 450,000 yuan Audi . "It was exactly the type of car I wanted because it's German...It feels powerful to drive and it's sturdy."
Chinese brands are struggling to win Chinese consumers, a trend that appears to have accelerated in the first quarter. Geely's Hong Kong-listed unit reported sales of 89,607 vehicles, down about 37%. Warren Buffett -backed BYD Co. sold 103,500 cars in China in the first quarter, a drop of about 28% from the same period the previous year. Chery Automobile Co. reported a 25% fall to 109,000 vehicles.
Chinese brands including minivans held nearly 39% of the market in the first three months of the year, compared with 43% in the year-earlier period, according to the government-backed China Association of Automobile Manufacturers.
By contrast, many foreign auto makers are posting solid Chinese gains. Ford Motor Co. sold 271,321 cars here in the first quarter, up 45%.
Poor quality, uninspiring marketing and an inefficient industry structure lie at the heart of Chinese auto makers' woes. Compounding these problems, foreign car makers and their Chinese joint-venture partners are increasingly looking to produce low-cost cars as they anticipate a boom in demand as hundreds of millions of rural Chinese move to cities to seek jobs, housing and cars. Foreign car makers are required to operate in China through joint ventures with Chinese auto makers.
The Chinese government also requires foreign auto makers to work with their local partners to develop low-price brands for China. Nissan Motors and partner Dongfeng sold 10,487 of their joint brand Venucia in the first three months of this year—just slightly less than sales of Nissan's popular Qashqai SUV. This translates to added competition for Chinese car companies, especially those that don't have a foreign partner.
"Chinese brands are still very weak and I have no idea how long that will continue," said Dong Yang, executive vice chairman and secretary-general of the China Association of Automobile Manufacturers.
In China, between 60% and 70% of car purchases are made by first-time buyers, according to Paul Gao, head of consulting firm McKinsey & Co.'s automotive team in Asia. He said that with greater experience, car buyers pay more attention to the overall cost of owning a car, examining factors such as fuel efficiency and maintenance costs—areas where foreign brands excel.
Dongfeng Motor Group Co. Chairman Xi Ping said last month that while great progress had been made by Chinese auto brands, they still weren't as strong as those from other countries. "I am convinced China will surely...produce a strong auto brand," he said.
There is some indication that Chinese car makers are building better cars. Last year marked the first time four Chinese brands ranked above industry average in J.D. Power's study of more than 27 best brands in China in terms of initial quality, something Geoff Broderick, vice president at the company's Shanghai office, described as a "breakthrough."
"Quality is improving, but the customer doesn't perceive that," Mr. Broderick said. "Chinese love brands and the perception among Chinese consumers is that if you have the wherewithal you'll buy a foreign brand."
Libra Hu, a 23-year-old technology company employee in Beijing, drives a 600,000 yuan Audi—a wedding gift from her and her husband's parents. "The whole car was produced and imported from Germany. We trust its quality and [Audi's] service."
In China, a hodgepodge of companies—state and privately owned Chinese companies and their foreign joint-venture partners—vie for car buyers' attention. China has roughly twice the number of brands and models that the U.S. has, according J.D. Power's Mr. Broderick. He's forecasting a capacity utilization rate of around 44% for Chinese car manufacturers this year—around half the levels seen at the factories of global players in China.
Talk of consolidation is common.
Ford Chief Executive Alan Mulally said in an interview in Beijing he expects larger Chinese companies with Western partners will buy out weaker, small players. "The economics will take over," Mr. Mulally said. "If you don't have scale, you just won't be able to be competitive."
Yet Geely's Mr. Li said he has his hands full running his own car company and has no plans to drive a consolidation wave.
Some are investing in foreign names abroad for brand cachet and know-how. In March, Dongfeng purchased a stake in France's PSA Citroën . Beijing Automotive Industry Holdings Co. has also said it is actively scouting acquisition prospects in Europe and the U.S.
At home, some industry players have begun to collaborate. Guangzhou Automobile Group Co. and Chery formed an alliance in 2012 to cooperate on issues including research, the development of energy-efficient "green cars" and auto-parts production. SAIC Motor is taking advantage of its partnership with GM to build its sedan Roewe 950 on the Buick platform. Geely is working with Volvo, the Swedish brand it acquired in 2010, to develop new vehicles. "There will be more and more of that going forward," said Mr. Gao of McKinsey.
www.wsj.com/articles/SB10001424052702304626304579512144185637348
Poor Quality, Uninspiring Marketing and Inefficient Industry Structure Plague Chinese Auto Makers.
BEIJING—With growth slowing, and foreign manufacturers gaining share, many of China's auto industry players could face extinction.
Some Chinese car makers are looking to the Beijing auto show, which opens to the media Sunday, as a chance to fight back by forging stronger bonds with Chinese car buyers through branding or woo them with popular products.
Zhejiang Geely Holding Group said Friday it was scrapping its three separate brands—Emgrand, Gleagle and Englon—in favor of a single Geely brand. Chairman Li Shufu said multibrand strategy had stretched Geely beyond its capabilities by forcing it to develop vehicles in three different categories.
SAIC Motor Corp.'s MG brand, Anhui Jianghuai Automobile Co. , or JAC, and Chongqing Lifan Industry Group Co. will each release a compact sport-utility vehicle, which is increasingly popular in China. Great Wall Motor Co. will launch its H8 SUV, which had been delayed over quality concerns.
These companies are hoping to persuade car buyers such as Ying Guohua, a 49-year-old self-employed Beijing resident, to remain loyal to Chinese brands. Mr. Ying used to drive a Zhonghua, a brand once owned by BMW 's China partner Brilliance China, that cost him around 180,000 yuan, or $29,200. "It wasn't really what I expected," he said. "Overall, it was aesthetically appealing, but it just didn't feel sturdy when I drove it." He upgraded to a 450,000 yuan Audi . "It was exactly the type of car I wanted because it's German...It feels powerful to drive and it's sturdy."
Chinese brands are struggling to win Chinese consumers, a trend that appears to have accelerated in the first quarter. Geely's Hong Kong-listed unit reported sales of 89,607 vehicles, down about 37%. Warren Buffett -backed BYD Co. sold 103,500 cars in China in the first quarter, a drop of about 28% from the same period the previous year. Chery Automobile Co. reported a 25% fall to 109,000 vehicles.
Chinese brands including minivans held nearly 39% of the market in the first three months of the year, compared with 43% in the year-earlier period, according to the government-backed China Association of Automobile Manufacturers.
By contrast, many foreign auto makers are posting solid Chinese gains. Ford Motor Co. sold 271,321 cars here in the first quarter, up 45%.
Poor quality, uninspiring marketing and an inefficient industry structure lie at the heart of Chinese auto makers' woes. Compounding these problems, foreign car makers and their Chinese joint-venture partners are increasingly looking to produce low-cost cars as they anticipate a boom in demand as hundreds of millions of rural Chinese move to cities to seek jobs, housing and cars. Foreign car makers are required to operate in China through joint ventures with Chinese auto makers.
The Chinese government also requires foreign auto makers to work with their local partners to develop low-price brands for China. Nissan Motors and partner Dongfeng sold 10,487 of their joint brand Venucia in the first three months of this year—just slightly less than sales of Nissan's popular Qashqai SUV. This translates to added competition for Chinese car companies, especially those that don't have a foreign partner.
"Chinese brands are still very weak and I have no idea how long that will continue," said Dong Yang, executive vice chairman and secretary-general of the China Association of Automobile Manufacturers.
In China, between 60% and 70% of car purchases are made by first-time buyers, according to Paul Gao, head of consulting firm McKinsey & Co.'s automotive team in Asia. He said that with greater experience, car buyers pay more attention to the overall cost of owning a car, examining factors such as fuel efficiency and maintenance costs—areas where foreign brands excel.
Dongfeng Motor Group Co. Chairman Xi Ping said last month that while great progress had been made by Chinese auto brands, they still weren't as strong as those from other countries. "I am convinced China will surely...produce a strong auto brand," he said.
There is some indication that Chinese car makers are building better cars. Last year marked the first time four Chinese brands ranked above industry average in J.D. Power's study of more than 27 best brands in China in terms of initial quality, something Geoff Broderick, vice president at the company's Shanghai office, described as a "breakthrough."
"Quality is improving, but the customer doesn't perceive that," Mr. Broderick said. "Chinese love brands and the perception among Chinese consumers is that if you have the wherewithal you'll buy a foreign brand."
Libra Hu, a 23-year-old technology company employee in Beijing, drives a 600,000 yuan Audi—a wedding gift from her and her husband's parents. "The whole car was produced and imported from Germany. We trust its quality and [Audi's] service."
In China, a hodgepodge of companies—state and privately owned Chinese companies and their foreign joint-venture partners—vie for car buyers' attention. China has roughly twice the number of brands and models that the U.S. has, according J.D. Power's Mr. Broderick. He's forecasting a capacity utilization rate of around 44% for Chinese car manufacturers this year—around half the levels seen at the factories of global players in China.
Talk of consolidation is common.
Ford Chief Executive Alan Mulally said in an interview in Beijing he expects larger Chinese companies with Western partners will buy out weaker, small players. "The economics will take over," Mr. Mulally said. "If you don't have scale, you just won't be able to be competitive."
Yet Geely's Mr. Li said he has his hands full running his own car company and has no plans to drive a consolidation wave.
Some are investing in foreign names abroad for brand cachet and know-how. In March, Dongfeng purchased a stake in France's PSA Citroën . Beijing Automotive Industry Holdings Co. has also said it is actively scouting acquisition prospects in Europe and the U.S.
At home, some industry players have begun to collaborate. Guangzhou Automobile Group Co. and Chery formed an alliance in 2012 to cooperate on issues including research, the development of energy-efficient "green cars" and auto-parts production. SAIC Motor is taking advantage of its partnership with GM to build its sedan Roewe 950 on the Buick platform. Geely is working with Volvo, the Swedish brand it acquired in 2010, to develop new vehicles. "There will be more and more of that going forward," said Mr. Gao of McKinsey.
www.wsj.com/articles/SB10001424052702304626304579512144185637348