BEIJING – With strong backing from Chinese truck and bus manufacturer Beiqi-Foton, German automaker Borgward, which returned to the global automotive stage a year ago in Geneva, has big plans in China.
“With our China headquarters office in Beijing officially kicking off, Borgward, as a premium automotive brand, is substantially coming back to the world automotive stage,” Ulrich Walker, Chairman and CEO of Borgward Group AG, told CBU/CAR at Borgward China Opening Ceremony on March 10. At the same time, the 97-year-old German auto brand officially unveiled its first high-end premium SUV, the BX7, to the Chinese market at its China headquarters in Beijing.
“The BX7 will officially hit the Chinese market on April 25 during Auto China 2016, “ said, Kevin Chen, Executive Vice President of Borgward Automotive (China) Co., Ltd. “Our global first production plant, namely Beijing Borgward Co., Ltd., has completed its restructuring and already has an annual production capacity of 160,000 vehicles. Capacity is expected to expand to 360,000 units per year when phase II construction is completed,” said the former Cadillac China sales and marketing director.
With a registered capital of ¥3 billion ($460 million), Beijing Borgward was officially approved by NDRC for the production license of passenger vehicles on March 3, which marked another big step forward for the old German brand’s rebirth after production was halted for half a century.
Who’s behind Borgward?
Borgward AG was founded in 1919 in Bremen, Germany by a charismatic industrialist Carl F. W. Borgward. It was once the third largest car company in Germany after only Volkswagen and Opel, and it was also one of the largest car exporters in its heyday in 1950s. Borgward sold a total of 1.02 million cars, buses and trucks under the Lloyd, Hansa, Goliath, and Borgward brands before its controversial bankruptcy in 1961.
In 2008, Borgward founder’s grandson, Christian Borgward, teamed up with former Saab and Daimler PR executive Karlheinz Knöss to revive the historic marque. After rounds of talks and negotiations with different parties, Christian realized that it is almost impossible to rejuvenate the historic brand without securing a strong financial partner.
Beiqi-Foton, a commercial vehicle arm of Beijing Automotive Industry Group (BAIC Group), appeared on the horizon at the right time. Beiqi-Foton has been one of the world’s largest commercial vehicle manufacturers in terms of sales volume since 2010. Currently the Beijing-based company is the Chinese local partner of Daimler AG for the production of heavy-duty trucks and Mercedes-Benz OM 457 diesel engines. Beiqi-Foton is also the local joint venture partner of U.S. engine maker Cummins.
As the global commercial vehicle industry has experienced continuous slowdown over the last four years, Beiqi-Foton has tried every conceivable means to diversify its businesses and find new growth points, including the intention to enter into passenger vehicle production and sales.
In 2014, Beiqi-Foton invested €5 million to purchase all the rights of Borgward from Christian Borgward through its German subsidiary Foton Germany Auto Tech Engineering Co., Ltd., laying a cornerstone for Beiqi-Foton to develop its passenger vehicle business.
Under Beiqi-Foton’s support, Borgward’s new global headquarters was soon established in Stuttgart, Germany in May 2015. On July 20, 2015, Borgward Automotive (China) Co., Ltd., Beiqi-Foton’s grandson company, was officially registered in Beijing.
Having Beiqi-Foton’s financial backing, Borgward’s revival story continued by announcing its comeback at the 2015 Geneva Motor Show after a 50-year hiatus. At the Frankfurt Motor Show last September, Borgward’s BX7 made its world premiere, featuring a brand positioning of “accessible premium.”
Soon Beiqi-Foton completed the restructuring work of its Beijing Van plant in suburban Beijing and changed its name to Beijing Borgward Co., Ltd., where the BX7 SUV is being produced in preparation for its launch this month.
Currently Borgward has claimed to have built its BSP-T (for middle-level vehicles) and BSP-S (for small vehicles) platforms, on which different vehicle body types including SUV, sedan and MPV will be developed. The old German brand also plans to develop 1.0T, 1.4T, 1.5T and 2.0T engines to power its future product portfolio, including compact SUV BX5 and Projekt BX6 TS, which was just unveiled at this year’s Geneva Motor Show.
Equipped with FEV-finetuned 2.0L turbocharged engine, the production-ready flagship BX7 claims to have a top power of 165 kW. In addition to the ICE product plan, Borgward is also planning to launch PHEV, BEV and HEV first in Germany in 2018. A production site in Germany is reportedly being researched.
According to Walker, Borgward has set an annual sales target of 500,000 units by 2020, with two-thirds sold in China. Currently Borgward has signed up over 80 4S dealerships across China and the number is expected to reach 120 by yearend and 200 by the end of 2017.
“To fulfil this target, we are planning to launch two new models each year and by 2022 we will have a total of 14 Borgward SUVs, cars and MPVs on the market,” said the former Daimler Greater China CEO.
Although Borgward was once a leading automotive brand in Germany back in the 1950s, it may be confronted with a series of challenges when trying to be revived in such a cutthroat market environment, the most competitive ever in the history of the auto industry.
First, the new but weak Borgward brand image may bring negative impact to the volume. Although Borgward has repeatedly told consumers that it has nearly a 100-year history, its historical heritage, however, seems to have little help for its brand image rebuilding in today’s market. Although there are still about 20 Borgward clubs in 15 countries, most of current mainstream car buyers are not familiar with such a brand. Most of Chinese consumers, for example, have never heard of Borgward before. It will be very hard for Borgward to promote its little-known cars in the Chinese market, where over 100 automobile brands are fighting for a slice of the market.
Second, the brand positioning needs a strong financial backing. Borgward is repositioned as an accessible premium brand, which may mean that the performance-to-price ratio will be one of the key competitive weapons for the brand. Under such circumstances, Borgward products need to offer better specs than competitors, but at a much lower price. To have a competitive product, Borgward has signed multinational suppliers including FEV, Bosch, ZF/TRW, Valeo, Autoliv, Magna, Delphi and Aisin. They can help to improve quality and reliability of Borgward models but at the same time cost will be higher. Borgward’s “accessible premium” positioning also needs a lower pricing strategy to match it. The higher cost and lower price will, no doubt, squeeze the profitability and require tons of money to burn, which may pose a huge challenge to the financing of Borgward from Beiqi-Foton. Beiqi-Foton’s Q3 2015 financial statement reads that the company’s revenues reached ¥25.5 billion, flat over the previous year while net profit dropped by 41.45 percent to ¥161 million.
Third, there is still a risk for Beiqi-Foton’s Borgward to be merged into Beiqi-Foton’s parent BAIC Group, the fifth largest automaker in China and partner of Daimler and Hyundai. BAIC Group is now trying hard to promote and support the development of its own PV subsidiary BAIC Motor, which is producing the Senova, Beijing and Weivan brands. Currently BAIC Group is the controlling shareholder of Beiqi-Foton, with a lion’s share of 27.07 percent.
Beiqi-Foton’s acquisition of Borgward and expansion into the passenger vehicle production caused parent BAIC Group’s anxiety on internal competition. On November 20, 2015, Beiqi-Foton issued an announcement to propose the following solutions to eliminate internal horizontal competition against BAIC Motor.
- BAIC Motor acquires Beiqi-Foton’s passenger car business;
- BAIC Motor completely acquires Beiqi-Foton;
- A third party designated by BAIC Group adopts point 1 and 2; and
- BAIC Group and its designated party take other proper measures.
The proposal was already approved by both BAIC Group and Beiqi-Foton’s Board of Directors, which may bring uncertainty to the development of Borgward brand.
It remains to be seen how Chinese customers will react to the Borgward BX7 when it is launched and how the brand’s revival story will develop in China and the rest of the world.