An industry savior: Big boys' toys

Updated: 2013-04-19 08:46

By Wang Chao (China Daily)

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 An industry savior: Big boys' toys

Industry experts say China's motorcycle industry is going through a transition and needs to adjust to new market demands for leisure models. Provided to China Daily

The pursuit of pleasure is pumping new life into China's ailing motorcycle industry

In Western culture, motorcycles are often seen as a symbol of masculinity and adventure, but in China their chief attraction is that they provide cheaper transport. In China the sight and sound of a pack of Harley-Davidsons roaring down the highway is a rarity. Instead most people's experience of motorcycles is seeing much flimsier models being used for the likes of shopping and picking up children from school.

But things may be about to change, thanks to companies that are trying to recast the image of motorcycles as machines made for leisure.

Zhejiang CFMoto Co is one such company, having abandoned making cheap motorcycles and switching gear to go upmarket with its leisure machines.

The company, founded in 1989 as a spare parts producer, has gradually become a fully fledged designer and maker of motorcycles.

It is not an A-list motorcycle maker in terms of sales. It turns out about 200,000 machines every year, while the top brand turns out 1 million, but the company can boast of a profit margin above 10 percent, twice the industry average, thanks to its high-end models designed for the urban middleclass who put a premium on leisure pursuits.

"When the financial crisis broke out in 2008, we soon felt the chill," says Zhu Xiangyang, general manager of CFMoto. "Overseas orders dropped and we were losing ground to budget cars and minivans in the domestic market."

Over the past few decades in China, the glory days of the motorcycle as one of the main means of transport seem to have dissipated as the car industry has taken off and the noisy two-wheelers, also widely perceived to be unsafe, have been traded in for four wheels.

Although 23 million motorcycles were made in China last year, that was 15 percent fewer than in 2008, and even industry insiders have been conceding that cheap motorcycle manufacturing is a sunset industry.

"Five years ago we felt that the era of motorcycles (as a cheap means of transport) had ended and that we had to reposition them as an object of daily leisure," Zhu says.

A typical leisure motorcycle has a bigger engine (larger than 250cc or even 400cc), complex cooling systems and higher speeds, and is usually made to appeal to male instincts.

And such machines do not come cheap. While a regular motorcycle in China costs 3,000 yuan ($480; 370 euros) to 8,000 yuan, the big bikes can set you back 30,000 yuan.

Nevertheless, they are cheaper than their foreign counterparts. An imported 650cc-motorcycle costs more than 80,000 yuan.

The capacity of motorcycles is generally less than half that of the smallest of small cars, so even the biggest motorcycles usually escape criticism over exhaust emissions.

Creating a slipstream of increasing popularity for the top-end models, and then riding in the same slipstream, CFMoto had revenue of nearly 1 billion yuan last year, a 67 percent increase on the previous year at a time when revenue in the industry fell 5 percent and exports fell 17 percent, the China Association of Automobile Manufacturers says. At the same time, sales of leisure motorcycles more than doubled.

Li Bin, secretary-general of the association's motorcycle section, says Chinese motorcycle makers have now realized that leisure motorcycles are reviving the industry after about 10 years of stagnation.

"There was still growth every year, but it was softer and softer," Li says. "I think we are now going through a critical phase, transforming the motorcycle from merely a daily means of transport into something you use for fun after work.

"In developed markets such as the United States and Japan, motorcycles are positioned as outdoor gear, and China is now making that change."

So cars will not replace motorcycles because the latter "represent an alternative lifestyle", Li says.

In fact, those who buy expensive motorcycles usually own cars too, he says.

CFMoto also stresses the idea of fun in a couple of other products it makes, all-terrain vehicles and yachts, big kids' toys that also use the company's core engine technology and can be taken for a spin in the wilderness and on water.

Besides motorcycles, CFMoto uses ATVs to propagate its image as a seller of adventure. While few Chinese would have heard of ATVs, let alone seen them in real life, many would have seen them in Hollywood movies: mini-tractors with outlandishly large wheels bouncing over farms hills or making their way through streams. The sturdy vehicles are made to cope with tough terrain and can be used either for work or for leisure.

Zhu of CFMoto says the company sold more than 20,000 ATVs and nearly 10,000 motorcycles to the European and US markets last year, Now it is ranked third in ATV sales worldwide, he says.

Last year CFMoto set up a subsidiary in the US and has worked with dealers in Africa, Europe and South America to deliver its products.

In Africa, vehicles sales are still chiefly driven by the demand for cheap transport, but the company also wants to plant and grow the "fun products" concept there.

"We have given up selling low-end models in Africa", Zhu says. "We're not rushing to increase sales volume. We want to build our brand so that when anyone mentions CFMoto the response will be: 'Oh, they're the ones who make leisure vehicles.'"

In China, these high-end toys are most popular in coastal cities, Zhu says. The motorcycle section of the China Association of Automobile Manufacturers is encouraging companies to upgrade their product lines to leisure models.

"The optimal ratio for higher-end motorcycles should be 20 percent, and the rest regular products, but profit from higher-end products should account for 80 percent of the total," Li says.

The catch is that making leisure models requires technology that many Chinese companies do not have, such as special engine cooling.

Because research and development is expensive and can be a hit and miss affair, only those with the deepest pockets are willing to risk the outlay.

Building a brand from scratch is not easy, and Qjiang Motor, a motorcycle maker in Zhejiang, has taken a shortcut to building an international brand by acquiring a century-old Italian motorcycle maker, Benelli.

Although Qjiang is one of the top manufacturers in China in terms of sales, it is also going through a rough patch. It has yet to publish financial figures for last year, but Yu Ming, director of the marketing department, says the market can be summed up in one word: gloomy.

One consolation is that Qjiang Motor's wares are selling well domestically because of the demand for its leisure products.

Since 2005, when Qjiang signed its deal with Benelli, it has gradually introduced Benelli's technologies in its products and is now switching the focus to big motorcycles, where there is more money to be made.

Last year it developed a new model and has sold 3,000 of them. With a price tag of 39,800 yuan, it has brought in more than 100 million yuan for the company.

"The acquisition has solidified dealers' and customers' confidence," Yu says. "It has also given us core technologies and design capabilities."

Qjiang has kept the research and development center in Italy so it can operate independently.

Yu stresses that the company really is innovating rather than making cosmetic changes. "The innovation is with the engines."

In the main assembly plant in Taizhou, Zhejiang, eight production lines operate, and every minute eight models roll off the assembly lines.

But like other big companies, Qjiang is still not ready to do away with cheaper traditional models.

Although the margins that Qjaing has on traditional models are shrinking, given that about 1 million machines are sold each year the financial attraction is obvious.

"Profits on leisure models are higher, but the market is not really ready for large-scale production," Yu says.

"There are 3,000 county-level cities in China, which is now our major market, and after-sales services for these new models cannot be expected to catch up that quickly in these markets."

That is one reason why many manufacturers are so sketchy about sales goals for leisure motorcycles, and Qjiang says there is no optimal proportion between fun models and traditional ones.

Mark Blackwell, vice-president of the US motorcycle brand Victory, said at the 10th China international motorcycle show in 2011 that China's motorcycle industry was going through a transition and needed to adjust to new demands.

"The motorcycle industry has been slowing in recent years, but I can see more cooperation between companies. In the long run I'm very confident in this market."

Any Chinese company wishing to make a name for itself with its expensive models faces stiff competition. While the oldest Chinese motorcycle company is 40 years old, Harley-Davidson of Milwaukee, Wisconsin, is 110 years old. Japanese brands such as Yamaha and Honda also have many fans in China, as they were the first high-end motorcycles to enter China in the 1980s, mostly through smuggling, and left a good impression among Chinese customers.

In addition, Chinese customers' spirit of adventure has only been triggered recently, analysts say. Unlike those who buy motorcycles in the US and Europe, Chinese buyers tend to prefer safety to passion and the indoors to the outdoors, which makes it difficult to promote the big, leisure motorcycles, analysts say.

Chinese manufacturers face another problem: about 200 cities in China have set restrictions on the use of motorcycles for reasons of safety and noise reduction. Beijing, for example, has a population of nearly 20 million, but only 25,000 motorcycle licenses, a number that is stagnant. Those who want to ride a motorcycle have to buy a license from the 25,000 in circulation, and they cost 26,000 yuan, a figure that continues to rise.

That is keeping a lid on the industry, and most motorcycles are sold in rural areas, where purchasing power is low and the demand for expensive vehicles is small.

Companies and associations complain from time to time, but few cities have shown any inclination to abolish the quota system.

Buyers of leisure machines are mostly from the outskirts of big cities, as people there have the money and are not covered by quotas, the China Association of Automobile Manufacturers says.

That in turn hurts sales of the expensive leisure machines the most, because urban customers have more disposable income and are more willing to spend money on entertainment, industry analysts say.

"In the near future, the rural areas will still be the major market in terms of volume, but the future should be the leisure models," the association's Li says.

"As urbanization produces more mini-cities, there will be greater demand for leisure, and fun motorcycles should be one of the candidates."

If quotas are abolished, "I bet we can sell at least 20,000 more leisure machines every year", Zhu of CFMoto says.

(China Daily 04/19/2013 page10)