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Brand or sales? A tough choice for automotive executives

China’s auto market has bounced back in 2016. But a number of senior OEM executives in charge of sales have left their positions.

After Phil Murtaugh and Sun Xiaodong left Qoros last year, Daniel Kirchert, general manager of Dongfeng-Infiniti, left the company in January together with a few of his high-level colleagues. Volvo China Sales CEO Fu Qiang recently left the company to join an internet car startup.

What is the problem?

According to an insider, Liu Xu, head of Dongfeng-Infiniti marketing and PR department, may be promoted as Infiniti’s director of global content marketing, no longer in charge of the China market. This marks the end of the team Dongfeng-Infiniti put together earlier for its brand building campaign and indicates potential changes in its current marketing strategy.

Kirchert’s successor, Gaby-Luise Wuest, promised no drastic changes to the company’s current development strategy. But she was soon replaced by Lu Yi from BMW China.

Amid the management chaos, Infiniti is also fighting a price war. According to Zhongshang Auto’s research, Dongfeng-Infiniti gives an average rebate of ¥50,000 ($7,615) for its new cars, much higher than Lexus’s average ¥10,000 rebate. The aforementioned insider revealed that the rebate is only lower than Audi and BMW. For a smaller brand like Infiniti, this deep rebate compensation to dealers cuts down company expenditure on branding.

Thanks to Kirchert, Infiniti sold 9,610 units in China in the first quarter this year, constituting more than 16 percent of global sales and a 21.7 percent growth. But in April, sales plummeted to 1,668. The official statement blamed on the company’s recall of problematic vehicles, but that is not the whole picture.

An analyst told Zhongshang Auto that 2006-2013 were the golden time for OEMs to invest on brand promotion in China. China’s market started to cool down and transformed into a buyer’s market in 2014. A number of OEMs felt the pressure from shareholders on financial performance. A Roland Berger report shows that the return on invested capital (ROIC) in the automotive business was only 8 percent in 2014, lower than other heavy industry businesses. As a result, many automakers chose to cut down spending on brand marketing to maintain profitability. This move severely affected the compensation for sales talents, forcing many of them to leave.

But skimping on brand promotion may hurt the brand in the long run, especially for a luxury brand. It took eight years for BMW to build its current image in China. Audi spent 10 years to reach the same level as BMW and Mercedes. Even today, these big players are still heavily investing in brand marketing. It has become more critical for a young brand in China to do the same.

Lexus is a maverick in the current weak China market. Its sales have soared by 40.1 percent in the first four months this year. It surpassed JLR in April and became the 4th largest luxury brand in China. Its current 0.4-month inventory is significantly lower than the industry average of 1.54 months.

Lexus China’s executive vice president Tetsuya Ezumi told Zhongshang Auto that Lexus does not force its dealers to lower price and then offer them compensations. He did not believe this is a stable business model. “Among all automakers in China, I am the only executive that includes dealers’ revenue into my performance review.”

The insider revealed that with the support of an efficient logistics channel, Lexus is the only luxury brand that operates truly based on market demand. It does not make excessive number of cars or dump them onto dealers. Such a strategy obviously has paid off.

(Translated by Kevin Wang based on author’s original article published on Zhongshang Auto)

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