Faced with a slowing home market and stiff competition from foreign-backed rivals, China’s big domestic auto brands are increasingly looking to developing markets to revive their flagging sales, with Geely (HKEx: 175) the latest to jump on the export bandwagon. A company executive says Geely, which made headlines a couple of years ago with its purchase of Volvo, aims to overtake domestic rival Chery in the next 2 years to become China’s leading car exporter. (English article) Geely is joining Chery in the drive to overseas markets as growth in China’s domestic auto market, the world’s largest, has slowed dramatically over the last year after Beijing retired many buying incentives designed to boost domestic consumption during the global financial crisis. As the market has slowed, China’s “big 3” domestic nameplates, Geely, Chery and BYD (HKEx: 1211), all of which specialize in lower end cars, have lost steady share to other domestic rivals with big-name foreign joint venture partners. Those rivals are turning up the heat even more with a recent series of new initiatives to enter the lower end of the market, which traditionally was dominated by the domestic brands. (previous post) Under its aggressive export expansion plan, Geely will open factories this year in Belarus and Uruguay, adjacent to 2 of the world’s 5 BRICS countries, namely Russia and Brazil. Chery, which has opened one plant in Venezuela and is building another in Brazil, was China’s export leader last year with some 160,000 cars shipped abroad, and has seen strong overseas sales in the first 2 months of this year as well. From my perspective, this overseas strategy looks like a smart move as China is arguably one of the world’s most advanced countries in terms of designing and building reasonably high-quality cars costing less than $10,000 each — a combination preferred by many developing market white collar urbanites who often can’t afford the pricier models offered by big-name foreign companies like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG). GM has recently discovered the lower end of the market can be quite lucrative, developing its Chevy Sail specifically for China 2 years ago. Since its release, the Sail has become one of the nation’s best selling models, providing further headaches for the domestic nameplates. If they are smart, which appears to be the case, Chery, Geely, BYD and other export-minded domestic automakers will accelerate their overseas plans, as they should have a 2-3 year head start over the big foreign names. If they hesitate, they could easily run into the same foreign competitors in overseas markets that are already rapidly eroding their profits at home.
Bottom line: Geely’s acceleration of its export drive looks like a smart move, allowing it to leverage its expertise in low-end cars to quickly grow in other developing markets.
Related postings 相关文章:
◙ Nissan, VW Jump on China Brand Bandwagon 日产和大众进军中国低端车市场
A growing number of big foreign car makers are developing new low-end brands and models just for the China market, with Nissan (Tokyo: 7201) and Volkswagen (Frankfurt: VOWG) the latest to make moves in that direction. These new initiatives come as the foreign giants look to keep their growth alive in China’s slowing auto market, posing a major new challenge to domestic nameplates like Geely (HKEx: 175) and Chery, which have been rapidly losing share to their better funded, more experienced foreign rivals. These moves also follow on the phenomenal success of General Motors’ (NYSE: GM) 2010 launch of the Chevy Sail, its first low-end model developed just for China which has posted growth rates in the 50 percent range for much of the last year and is now one of the nation’s best-selling models. Let’s look at the latest news first, starting with Nissan, which last week formally began production of its Venucia line of cars developed just for the China market in its partnership with Dongfeng Motors (HKEx: 489). (
While most of China’s top automakers are relying on partnerships with major global brands to help get them through a domestic downturn expected to last for the next 1-2 years, Geely (HKEx: 175) is taking an interesting approach by turning to the struggling Volvo, with plans for a new joint venture. (
China has just published its first monthly auto sales for 2012 and they aren’t pretty, boding poorly for the sputtering market in the Year of the Dragon. Of course, the figures for the month of January come with several major footnotes, most importantly the fact that sales were weak in 2012 as the Lunar New Year holiday fell during the month this year, whereas it fell in February for 2011. Still, the 16.5 percent decline in sales for the month marked the biggest decline in more than a decade, a sharp reversal for a market that was used to gains in the healthy double-digit percentage range for most of 2009 and 2010, and was still seeing healthy growth for most of 2011. (
A couple of reports in the China Daily this morning are saying that 2 iconic Chinese car nameplates, the Shanghai and Hongqi brands, could both be poised for comebacks soon in what looks like an interesting new prospect for the domestic auto market. If they go ahead with the plans, the reintroductions of Shanghai brand autos by SAIC (Shanghai: 600104), and Hongqi cars by FAW Auto could actually stand a reasonable chance of success, banking on nostalgia among Chinese consumers and both companies’ growing expertise at making dependable cars with solid demand after years of working with foreign partners. According to the China Daily, SAIC listed a Shanghai brand model in a recent catalog, and a company insider confirmed plans to revive the brand, which ceased production in 1991 as China’s largest automaker focused its energies on its 2 main joint ventures, one with GM (NYSE: GM) and the other with Volkswagen (Frankfurt: VOWG). (
In what should come as a big surprise to no one, China has singled out cars imported from the US for special duties after the US took similar action against Chinese-made tires in response to an anti-dumping complaint. This kind of tit-for-tat punitive tariff is relatively common and usually doesn’t do much damage as the amount of product affected is small, but in this case it provides some sobering insight over what could happen if another looming trade war involving solar cells escalates. In this latest instance, China will slap extra duties of up to 13 percent on US-made cars from GM (NYSE: GM) and Chrysler, and will even impose smaller punitive duties on cars made in the US by German auto makers like BMW (Frankfurt: BMW) and Daimler (Frankfurt: DAI). (
The never-ending saga of a plan by 2 obscure Chinese firms to rescue dying Swedish automaker Saab has taken an interesting twist, with foreign media reporting that one of the Chinese partners has dropped out of the rescue group and been replaced by banking heavyweight Bank of China (HKEx: 3988; Shanghai: 601988). Under the original plan that stood little or no chance of success (
A barely noticeable news brief on Nissan’s (Tokyo: 7201) electric vehicle, the Leaf, in today’s China Daily provides some insight on how the big foreign automakers see China as an EV market, spotlighting the uphill battle the country faces in developing this technology. Nearly every foreign automaker has announced one plan or another to import or even build its EVs or hybrid vehicles in China, with GM (NYSE: GM) giving plans for its Chevy Volt and Toyota (Tokyo: 7203) and Volkswagen (Frankfurt: VOWG) all announcing their own initiatives. But most of those plans have been vague at best, reflecting both the fact that technology still needs time to mature and also a high degree of skepticism that Chinese consumers are ready to spend big dollars on alternate energy vehicles, which are typically much more expensive than gas-powered cars and require charging infrastructure that most of China still lacks. The news brief hidden on the inside pages of today’s China Daily says that Nissan recently put 15 of its Leaf EVs on the road in the central Chinese city of Wuhan for test driving. A company spokesman further said that Nissan will continue the tests for a full 3 years, which sounds to me like an incredibly long period for this kind of technology if it was really interested in trying to sell these vehicles in China. In fact, there’s a very real possibility that the technology will be obsolete in 3 years or sooner, meaning the Leaf will probably never see any commercial sales in China at all. My guess is that other foreign automakers will proceed with similarly conservative plans for their EV and hybrid vehicles in China, as all wait to see if government incentives and needed infrastructure develop to make a serious effort worthwhile. If that is indeed what happens, look for EV and hybrid auto sales by foreign automakers in China to number in the thousands of units or less for each of the next 2-3 years, while domestic players like BYD (HKEx: 1211; Shenzhen: 002594) are left to make a more serious effort at developing what in all likelihood will be a very difficult market.
