Homegrown automakers steer toward smaller cities
Updated: 2012-09-30 08:08
By Li Fangfang (China Daily)
An employee works at Chery Automobile Co Ltd's shop in Hefei, Anhui province, on May 16. Guo Chen / Xinhua
Chinese homegrown automakers are finding new chances for success in China's smaller cities after slipping in first- and second-tier urban areas due to fierce competition with foreign and joint-venture rivals.
China's auto brands "have more opportunities in low-tier cities", said Luo Lei, deputy secretary-general of the China Automobile Dealers Association.
"In those smaller cities, people are still striving to achieve their dreams of owning a car, so prices are a top consideration there."
Luo said purchase caps in Beijing, Shanghai and Guangzhou raised the bar for vehicle consumption. People sought more expensive cars after they acquired the right to buy one under the quota system.
"It was difficult for the homegrown brands to find their foothold in those limited markets," he said.
"They should prepare to expand their sales in more lower-tier cities, in a bid to weather their possible losses," Luo added. "It is likely that more markets will follow the trend in Beijing, Shanghai and Guangzhou with environmental and traffic considerations."
Cui Dongshu, deputy secretary-general of the China Passenger Car Association, agreed.
"Homegrown brands were hit hard by the vehicle-purchase limitation in those cities," Cui said. "Before the policy began, their sales in these mega-cities contributed about 30 percent to their total sales, but the proportion fell to 10 percent afterward."
Statistics showed that sales of China's 12 major homegrown vehicle brands - led by Chery Automobile Co Ltd, BYD Auto Co Ltd, Zhejiang Geely Holding Group, Great Wall Motors Co Ltd and Tianjin FAW Xiali Automobile Co Ltd - fell sharply from 118,000 units in 2010 to 41,000 units in the Beijing market in 2011, after the city started a lucky-draw policy on license-plate distribution in December 2010.
Chery's sales in the capital city plummeted from a record 37,000 units in 2010 to only 9,000 units in 2011, while Geely's market performance also weakened, with sales down from 26,000 units in 2010 to 10,000 units last year.
Their sales continued to stagnate this year, with Chery selling 5,000 units in the first five months and Geely selling 6,000.
Liu Jinliang, general manager of Geely's sales company, said that going to low-tier cities is the most important strategy for Geely's sales.
"According to our research, the market growth in first-tier cities has slowed to single digits or even zero. However, the demands in smaller cities are still increasing rapidly. We need to expand to these fast-growing markets as soon as possible," Liu said.
Geely has prepared for years to expand its dealership network to smaller cities.
The Hangzhou-based company, which made its name globally by acquiring Swedish luxury brand Volvo Car Corp from Ford Motor Co in 2010, has put 8 percent of its 1,000 dealers in first-tier cities, 56 percent in second-tier cities and 36 percent in third- or fourth-tier ones.
Analysts said that although further expansion into lower-tier cities is a necessary shift in strategic focus in order for homegrown brands to survive fierce competition in the market slowdown, they should find new methods in marketing and sales, different from the traditional "4S" (sales, spare parts, service, survey) store model that has been well received by consumers in big cities.
Liao Xionghui, general manager in charge of the sales arm of Lifan Group Corp, said the Chongqing-based automaker will focus on agent network expansion to third- or fourth-tier cities over the next few years.
The Chinese automaker now has more than 300 dealerships operating 4S stores all over the country.
"In the future, we are also considering separating sales and service in our agent network, to make both of them closer to consumers," Liao said.
Geely also signed with about 3,000 agents to sell Geely vehicles around the nation, especially in low-tier cities and even counties.
Dongfeng Motor Co Ltd is trying a new dealership model to speed up its expansion to third- and fourth-tier cities, for both its joint-venture Nissan brand and new homegrown Venucia brand.
According to its plan on developing new dealers, the ambitious entrepreneurs are encouraged to invest only 500,000 to 600,000 yuan ($79,000 to $95,000) to open a 3 million to 5 million yuan Dongfeng store.
At the beginning, the shareholding of the store will be decided by the joint venture between private entrepreneur and Dongfeng.
While the entrepreneur operates the store, Dongfeng will provide ongoing financial capital.
As the entrepreneur accumulates enough money from the vehicle business, he can purchase more shares from Dongfeng to become the controlling owner of the store.
Dongfeng aims to help more Chinese people, who do not have enough money to undertake such an enterprise at present, to fulfill their dream of starting their own car dealership.