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Domestic Brands Enter New High-End Field--Competition Diversifies in the Auto Market

Date:2Minutes ago Source:21st Century Business Herald Authour:Yu Linglin

 

Domestic Brands Enter New High-End Field--Competition Diversifies in the Auto Market

 

“The market needs new high-end cars.” On April 19th, at the media day event of Shanghai Auto Show, Chen Anning, GM of Chery Automobile, said in an interview, “With more new high-end domestic brands joining the team, Qoros is not alone any more.”

Does the market need another new brand? The Chinese auto industry has long been pondering this question through a series of problems like too many brands, excess production capacity, and poor product premium. There does not appear to be any shortage of new brands in the market, but the existing brands are still not strong enough to help domestic brands rise.

An Conghui, President of Geely, said, “If a domestic carmaker has the courage to launch a new brand, it has to make it different. That’s the differentiation strategy.”

Auto shows have always been the catwalks for carmakers. This year, at Shanghai Auto Show, new stars from domestic brands like Geely LYNK&CO, Great Wall WEY, and the NEXTEV EP9 made their appearance, creating quite an impression. Now whether in terms of product or brand, domestic carmakers are starting direct competition with JVs.  

The arrival of new domestic brands is starting to affect the strategy of the international car giants. Alan Batey, Executive Vice President and President of North America at GM and President of Global for Chevrolet, said, “GM will increase decision-making efficiency and accelerate product introduction according to the needs of the Chinese market.”

The market was once ruled by JV brands and domestic brands could only join the competition at the low end. Subsequently, domestic brands began to pose a challenge to JV brands. But today, they are entering the new high-end field together, indicating that competition is diversifying in the auto market.

New high-end domestic-brand cars on show

This year, domestic brands were the highlight of Shanghai Auto Show.

SAIC booked the whole of Hall 1. In contrast to the past when SAIC was dominated by JV brands, this SAIC gave an equal stage to both JV-brand and local-brand cars. And its domestic brands made quite an impression.

SAIC Roewe launched a pure electric SUV concept - the Roewe Vision-E Concept. In addition to the YunOS Auto intelligent connected system developed jointly by SAIC and Alibaba, it is equipped with “future black technologies” like automated parking and wireless charging. With an all-electric range of 500km and an acceleration of only 4s from 0-100km/h, this SUV concept car seems to pose a direct challenge to Tesla. It is reported that it will go into production in 2018. At the MG booth next to Roewe, an all-electric sports car concept supported by multiple black technologies--the MG E-motion Concept--was on show. SAIC Maxus also launched its all-new C2B intelligent tailor-made vehicle-- the SUVD90.

At this show, more than 10 new models or brands were launched by domestic automakers, among which the Geely LYNK&CO and the Great Wall WEY attracted a lot of attention. The former was launched on the new platform jointly developed by Geely and Volvo, while the latter is a high-end brand of Great Wall. Although LYNK&CO has not yet revealed its price, we know this brand has been targeted at JV brands from the beginning. The entry-level luxury WEY is priced between RMB 167,800 and 185,800 Yuan, which falls within the price range of mainstream JV brands.

In addition, new energy vehicles built by a number of new automakers like HK Motors, WM Motors, BAIC BJEV and NEXTEV also made their appearance at the show.

NEXTEV unveiled a pure electric concept vehicle with autonomous driving technology; the rumor is that it will be launched on the market at the end of 2017. WM Motors’ concept car, the AG2020, also made its debut at the Shanghai Auto Show.

The era of diversified competition is coming

At the show, the products exhibited by domestic brands had something in common – “new high-end”. Whether in brand positioning, product, or price, they were all of a high level and even surpassed some JV-brand models.

“We are not alone any more.” With more and more domestic brands joining the new high-end team, Chen Anning expressed relief; “This means Qoros didn’t take the wrong path.”

The new high-end trend in domestic brands can be traced back to 2008. At that time, domestic automakers represented by Chery and Geely started to realize that domestic brands could change their initial low-end images only through upgrading. Unfortunately, at that time domestic automakers did not know how to transform. They thought they could target the high-end market simply by abandoning their low-end products and building a new brand. Along the way, many domestic automakers experienced successes and reverses. In the process of transformation, Chery lost its top spot in the domestic brand ranking. And around 2011, domestic brands experienced the worst of times under the pressure of JV brands.

At the Shanghai Auto Show in 2011, domestic brands like Chery, Geely and BYD did not put any new models on show. At that time, the domestic brands that had dominated the low-end market experienced a sharp fall in sales. Chery, BYD and Geely all dropped out of the Top 10 sales ranking.

6 years later, domestic brands had a dramatic reversal of fortune. According to statistics from the China Association of Automobile Manufacturers, in 2016, the sales of domestic-brand passenger vehicles exceeded 10 million for the first time. Geely’s sales were well above its annual target, up by 50% on a year-on-year basis; Changan achieved annual sales of 1,284,500 in its domestic brand passenger vehicles, a year-on-year increase of 27.6%--this was already better than the performance of its JV brands; GAC Trumpchi, with year-on-year sales growth of 96%, contributed more profit than most of the JV brands under GAC. Now, the overall growth of domestic brands is starting to put pressure onto foreign brands. For example, the market share of Korean cars dropped from 9% in 2014 to only 7.35% in 2016.

Some insiders predict that, from an initial position of domestic brands and JV brands not interfering with each other, to the upgrade of the former and the downward probing of the latter, and then to the launch of more and more new high-end domestic brands and products, market competition will definitely become more diverse.

In fact, JV automakers are not the only ones that are being challenged. Even luxury car makers cannot ignore the pressure coming from the new high-end domestic brands and products, because in truth, they are already targeted by domestic-brand concept cars whether in product positioning or performance. For instance, Qiantu is positioned directly as a luxury car brand, aiming to compete with Tesla.  

For the new high-end brands, products will still be the trump card

New high-end domestic brands will definitely bring changes to the whole competition landscape. JV automakers can no longer overlook the existence of domestic brands. Under such pressure, multinational automakers will definitely introduce more products and technologies to China.

GM is now conducting a new round of deployment of future products and technology in the Chinese market. At the beginning of 2017, GM announced that it will launch 18 new or facelifted models in China this year, covering five major brands, namely Chevrolet, Buick, Cadillac, Wuling and Baojun. According to GM’s plan, all products under Cadillac, Buick and Chevrolet will have Internet connection by 2020. In the next few years, GM will also implement its car sharing plan in China.

In 2017, Volkswagen will launch a total of 60 new models. In the NEV field, there will be 30 BEV models under Volkswagen by 2025.

“JVs already have an advantage in brand; so as long as they can stay ahead in product, they will have high premium capacity. But once the technologies, products and brands of domestic carmakers are recognized by consumers, the advantage of the JVs will be less and less obvious,” said an insider.

The new high-end brands and products currently being launched are all accompanied with a new round of business model innovation. For example, LYNK&CO is planning to enter the market using brand-new business models like online sales, door-step service, car purchase through contract and life-long free maintenance.

These innovative models can only be implemented by new enterprises. For large-scale JV automakers like GM and Volkswagen, it is not so easy to make such great changes.

However, some insiders argue that, the new high-end domestic brands may come on strong, but many of them are simply talking themselves up. In the auto market, whether you have good marketing or innovative models, the trump card has to be the product itself if you want to win customer recognition.

“If you can’t manage suppliers well and don’t have the mass production capacity, you won’t produce high-quality mass-produced cars no matter how cool your concept car is or how well it can perform,” said Shen Hui, Founder and CEO of WM Motors.

Zhu Jun, Deputy Director of Technology Center in SAIC Motor Passenger Vehicle Co., Ltd., believes that the peak aim for a domestic brand is to possess technologies that are in line with or even more advanced than JVs’ and at the same time being able to control costs. Therefore, while building new high-end cars, SAIC is also integrating its industrial chain to reduce NEV costs at a faster pace than the reduction of national subsidies.

 


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