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The “Chinese Wolves” Are Coming…

Date:02-27 15:57 Source:autochina.comnews.cn Authour:He Lun

——Auto Market Hotspots Q&A (119)

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First, brands like Haval won the mid- and low-end SUV market with attractive prices accompanied by good technology and high quality; later, SUVs like the Boyue, the RX5 and the GS8 started to grab share of the higher-end market with their high quality, attractive configurations, low price and excellent design. Now it is the turn of the sedan.

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16 years ago, when China had just joined the WTO, local carmakers were crying that “the wolves were coming” and some even said that they were going to “dance with the wolves”. Clearly they were referring to the multinational carmakers. Now, 16 years later, some of those Chinese brands who danced with the wolves have become wolves themselves, and it’s time for the multinational carmakers to cry. Starting with the Geely Borui two years ago, Chinese brands have staked their claims to the market one by one, and the latest newcomer is the Roewe i6. This dramatic change is really unexpected and also intriguing.

The “Chinese Wolves” Are Coming…

Q: The Roewe i6 has just been launched, stating that its target will be its JV-brand rivals in the same class. Does this mean that after the fight in the SUV market, Chinese brands are starting to compete directly with JV brands in the sedan field?

A: It seems to me that Chinese brands started to break into the sedan field two years ago with the launch of the Geely Borui. This model broke through the ceiling of the local-brand mid-sized sedans; later it was the Geely Emgrand GL, which set a new standard for the technical configuration of compact sedans; now it is the Roewe i6, the first internet family car in the world. All the above cars have a number of common features: the original design has achieved a certain level; the quality and technical specifications have reached and even partially exceeded those of the JV-brand sedans in the same class; and more importantly, they are priced a lot lower than their JV-brand rivals.

This is just the beginning. I wouldn’t call it direct competition because it is still too early. Staggered competition may be a more appropriate term to describe this situation, as these local-brand cars all have high specifications now but sell at low prices. No doubt they are targeting the mainstream JV-brand car users. For example, the i6 is targeting the users of the Lavida and the Sylphy, which are the two top-selling models among compact sedans – the largest market segment.

Q: Speaking of this staggered competition strategy, these highly competitive new models like the Roewe i6, the RX5 and those of Geely and GAC Trumpchi are priced 20-40% lower than the mainstream JV-brand ones in the same class. How can they keep the cost so low? Is it because they are lowering standards or cutting corners?

A: I was in doubt myself, so when I talked to these companies, I kept asking questions about cost. I have written about this in articles like “For Whom Is the Geely NL3 Sounding the Alarm? and “Will This 7-seat Trumpchi GS8 Become a Hot Seller?” The truth is that these local carmakers have grasped core technologies in spare parts design, calibration and matching, have carefully calculated the costs across the whole industry chain, and have implemented efficient production systems (like the GAC Production System (GPS) – a localized version of the Toyota Production System). In addition, they purchase spare parts at lower costs than their JV competitios, because large automotive suppliers have already divided up the mainstream OEM market, and now if they want to expand their business, they have to compete with those newly-emerging and promising carmakers by lowering their prices.

An executive of Geely tells me that at the global supplier conference a few years ago, he asked the suppliers to reduce their prices by 30% if they wanted to work with Geely, and the suppliers all laughed about it; last year he said this again and no one laughed any more.

Not long ago, I visited one of the world’s top automotive suppliers to verify if this was true, and they told me that they did offer preferential prices to some local carmakers in order to secure future profits, but they refused to tell me exactly how “preferential” the prices were.

The “Chinese Wolves” Are Coming…

Q: So to the JV brands, some local brands really are wolves. The question is - when and how will they change the market competition pattern?

A: This is a gradual process. First, brands like Haval won the mid- and low-end SUV market with attractive prices accompanied by good technology and high quality; later, SUVs like the Boyue, the RX5 and the GS8 started to grab share of the higher-end market with their high quality, attractive configurations, low price and excellent design. Now it is the turn of the sedan.

What’s interesting is that those who kept complaining about the “market for technology” strategy two years ago are now keeping very quiet, because Geely, SAIC, GAC and Chang’an have provided the answer with their new models.  

As for when these local-brand cars will change the structure of competition, I wrote in the article “SAIC Finding Its Own Way” five years ago that it would take at least another 5 years for SAIC’s local brands to develop their own “full-blooded” models - a prediction which has now come true. So here I would like to make another prediction: when these outstanding local brands launch their next-generation models 5/6 years from now, they will be ready to compete directly with JV brands.

I have heard that Korean carmakers are starting to feel the pressure. When they took some new Chinese-brand models home and disassembled them, they were astonished by the quality and the technology. According to the “Brand Finance Global 500 in 2017” recently issued by Brand Finance, a branded business valuation consultancy in U.K., there are a total of 28 car brands on the list, among which Geely Automobile ranks the 472nd, even above Opel. It is the only Chinese car brand on the list.

All this indicates that the rise of Chinese car brands is irreversible.

Q: 12 years ago, Zhu Yanfeng, the then General Manager of FAW, said that “local brands need to be patient and wait another 20 years”. Judging from the current situation, it’s not going to take them 20 years, right?

A: Mr. Zhu was criticized by a lot of people at the time for these words. I think he is right about the overall trend for Chinese brands. Especially at present, when the situation looks so good for Chinese brands, I’m a little worried that local carmakers will become impatient and make mistakes again. If they want to be ready to compete directly with JV brands and change the structure of competition for real, they have to keep their feet on the ground and work harder, even it takes them another 7/8 years.  


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