Chinese cars on the road to breaking its cheap image
Updated: 2011-01-26 10:57
By Wang Chao (China Daily)
BEIJING - The made-in-China label is considered by some as cheap and secondary in quality. And that's the stereotype Chinese automakers are keen to smash, although the mission will take time and may eliminate some Chinese brands.
Most independently developed Chinese cars - which generally came into the market in the 1990s - are sold for less than $15,000, with an average profit for each car at only $400.
At the same time, cars produced by joint ventures in China earn at least three times more. Experts estimate that in the Chinese market, 66 percent of the profits go to joint ventures.
There are about 50 independent car brands in China, but none has reached an annual production capacity of 1 million cars. The history of auto industry shows that a worldwide brand needs a production capacity of at least 2 million.
Ma Deji, vice-president of Chery Auto, a leading independent marque, said that eventually the 50 or so Chinese brands will be integrated into fewer than 10.
"Any company with a capacity of less than 2 million will not survive," said Ma. Chery produced 850,000 cars last year, with the company forecasting production of more than 1 million cars this year. Two months ago, he was assigned to take over Chery's high-end names, Riich and Rely.
Figures from the China Association of Automobile Manufacturers show that the car ownership ratio in China is 50 cars for every 1,000 people, far lower than the world's average of 160; in the United States, the number is 860 for every 1,000 people.
Ma, who gets a bit emotional when talking about the struggle of Chinese car brands, is passionate about home-grown marques. "If I had wanted to, I could have worked in a joint venture," he said.
Chery decided to break its "cheap" image by introducing high-end models. In 2009 it launched its first high-end car, Riich G5, costing 150,000 yuan ($22,000) but it was not well received. Monthly sales never exceeded 1,000, almost a tiny fraction of the sales of its top-selling Chery QQ, which costs about 30,000 yuan.
"It is hard to build a high-end image because we don't have a successful example to follow. But we have to do it because it matters for the future of the car industry in China," he said.
The 150,000-yuan market is the main battlefield of joint venture companies such as Volkswagen, Nissan and Toyota.
"We still need time," Ma said. "We cannot eliminate people's stereotype overnight.
"But without customer recognition, it is hard to make a breakthrough in sales."
But such breakthroughs need lots of funds for research, development and promotion, which Chery doesn't have.
It forms a vicious circle: Profits are very slim so these companies have little to invest in research and development, which in turn result in low-end cars and even slimmer profits.
Chinese automakers also find it comparatively easy to design the exterior, but hard to develop the engineering and technology, especially in engines and transmission.
For a company to develop high-end cars, it has to rely heavily on imports, which then raises the price significantly. Considering the consuming power of Chinese customers, most Chinese brands choose to use domestically made parts.
Another Chinese car brand Geely has taken a different road. Instead of developing models, it chose to acquire mature brands.
On Aug 2 last year, Geely bought Volvo from Ford. And the little-known Chinese company became known worldwide.
"It is the best way to get core technologies from established cars," said Jia Xinguang, a senior auto analyst.
"Joint ventures with foreign automakers have many restrictions. For example, core technologies will be kept secret from Chinese partners, let alone applying the technology to our Chinese brands."
But whether Volvo remains high-end or gets reduced to the middle-end market to attract millions Chinese customers is still being debated within the company.
Li Shufu, president of Geely, has said he would protect the independence and high-end image of Volvo, but at the same time, the company is planning to build another three Volvo factories in China and raise the capacity to 300,000 cars for the Chinese and export markets.
"Geely and Volvo are not father and son, but brothers," Li said in December. But whether the brothers can get along remains a question.
Ma said what Chinese automakers need is time. "Our company, for example, has a history of only 13 years while Mercedes-Benz and BMW have almost a century.
"The quality is already good enough, considering our short history.
"Now we are competing for low price. After two to three years, we can get breakthroughs in core technologies and hopefully in seven to eight years, we will be able to compete with the top brands."
He predicted that if Chinese marques keep developing, US cars may be phased out of the Chinese market in about 10 years, before Japanese and South Korean cars.
"Chinese brands will catch up with other top brands in 10 to 20 years, and then Chinese brands will take 80 percent of the market share in China."
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