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Chery to take on joint ventures with greater lineup of vehicles

– by Pei Dajun

 

Multiple-brand strategy

At the Shanghai auto show last April, Chery Automobile Co. displayed 32 automobile models under four major brands. “We expect to launch every one of them in the next two years,” says Jin Yibo, spokesman of Chery and assistant to Chery CEO.

“With these brands, Chery is going to compete against joint venture automakers in all segments,” Jin says.

Until recently, the company has marketed all its vehicles in China under the Chery brand. It is now adding three new brands – Riich, Rely and Karry.

Chery is the core, mainstream brand that covers a wide range of affordable vehicles in different sizes and body types, from the new QQme mini car to the Tiggo 3 hybrid crossover.

Riich (Ruiqi in Chinese) is the company’s luxury brand. Rely (Weilin) is aimed more at business users, including MPVs, crossovers, SUVs and eventually pickups. And Karry (Kairui) will be comprised mainly of small commercial vehicles aimed primarily at the rural market, beginning with the new Viewsonic microvan.

Jin says, “Our cars used to be of the A-, A0- and A00-Class and meant for the low-end market, a tradition of local carmakers. Homegrown automakers have largely maintained their market share with low prices.  Chery, as a leading homegrown automaker, must overcome this barrier.”

By 2007 when its cumulative sales reached the 1-million-unit mark, Chery had boasted a fairly rich product lineup. However, if the Riich G6, a luxury sedan, were to bear the same brand and logo as the QQ mini car, the customer would continue to view Chery as a maker of low-end cars only, Jin says.

“It is difficult to have only one brand to represent high-end sedans as well as economy cars and commercial vehicles. It is time for us to segregate our numerous models with different brands. That way, we can compete against joint venture automakers in an all-round way,” he says.

“Brand multiplicity leads to size of operation. Without a big size, one can hardly be deemed a strong player in China. Without a rich product lineup, without a sizeable market share, you do’t have the right to set market prices,” he says.

Chery has also set up separate sales and market networks for different brands, with Chery Sales Co. for the mainstream Chery brands, Qilin Sales Co. for Riich and Rely vehicles, and Karry Sales Co. for microvans.

“Vehicles of different brands wo’t be put in the same showroom, nor are they sold by the same team of salespeople,” Jin says.

Chery is making progress, too, on the workshop floor. The company is expected to come up with its own automatic transmission before the end of this year, something it is immensely proud of. The automatic transmission has long been a bottleneck for homegrown automakers and Chery is expected to be the first to crack the hard nut. And, last April, Chery established an auto finance company in a partnership with the Huishang (Anhui Merchant) Bank, the only one so far that serves exclusively a homegrown automaker.

The 11-year-old carmaker has entered the second phase of its development in 2009, according to Jin. “We are making bold moves on all important fronts. Next year and the year after that, we expect to have a rich harvest,” he says.

 

Merger with JAC a moot question

Consolidation has been a major goal for the industry according to the Automotive Industry Readjustment and Revitalization Plan issued by the central government earlier this year. The provincial government of Anhui, where Chery Automobile Co. is located, would like to see the birth of a Greater Anhui Motors Group by merging Chery and Jianghuai Automobile Group Corp. (JAC), a State-owned enterprise also located in Anhui.

But both automakers have so far failed to show much enthusiasm for a merger.

The two automakers are mutually complementary in product lines and can share a lot of resources, according to Jin. While Chery is good at R&D and production of cars and engines, JAC is a strong player in light and heavy-duty commercial vehicles.

“Consolidation is necessary and it must proceed under the direction of the government,” Jin says. “But we have’t seen a specific merger plan so far.”

Jin may have inadvertently revealed his own passive attitude toward consolidation in what he says. The government can encourage a merger, but common sense says that any consolidation “tailored by the government” rather than in accordance with market economic principles may be counterproductive.

JAC has lately launched its own lineup of cars while continuing to maintain its position as a successful manufacturer of commercial vehicles. In the meantime, Chery has been trying to maintain its No. 1 position in Anhui with its multi-brand strategy and increased product lineup. Each is trying to increase its own weight in a future merger, which may not happen any time soon.

 

Fiat connection

Industry circles speculate that Fiat would stop talking with Chery after it has recently signed a joint venture agreement with Guangzhou Automobile Group Co. (GAC). But Jin Yibo denies the allegation.

Jin emphasizes that Chery now engages in partnership talks in a “standing but not prostrate position.” “We wo’t beg, nor is it necessary for us to beg in talks with any foreign business,” Jin says.

Given Chery’s strong position and Fiat’s alleged announcement that it has “put on hold” partnership talks with Chery, it is clear that both sides hold no hopes for cooperation. What is missing is a formal announcement about the termination of talks.

Chery has successively held partnership talks with Chrysler, Fiat and Quantum LLC. It turns out that only its cooperation with Quantum seems to be happening. Chery is not fazed at all by the failure of its cooperation talks with the former two. “Since the talks involve no actual input of capital, assets and technology, Chery has lost nothing,” Jin says.

 

Still a leading exporter

In the first six months of this year, Chery sold 196,000 cars on the home market, up 56.3 percent over the same previous period, a growth rate the company is rightly proud of.

In the same period, however, Chery shipped only 15,000 units overseas, compared with the 80,000 units in the first half of 2008. It is obvious that Chery’s international business since the beginning of this year has suffered serious setbacks.

Jin claims, however, that Chery has remained China’s No. 1 exporter of cars despite a sharp drop in exports in the first half year.

The ongoing world financial crisis has caused difficulties for the international business of all Chinese automakers. Chery is responding to the dire situation by “looking for business in areas suffering less from the financial crisis,” in Ji’s words.

“We are developing markets in countries that have been impacted less seriously by the financial crisis. In the meantime, we’ve become more cautious in some countries with a restive domestic situation,” Jin says.

The African market, which has been less impacted by the financial crisis, has grown more important to Chery, according to Jin. “In Egypt, our monthly sales now reach 1,500 units,” he says.

In response to the drastic changes in overseas markets, Chery has speeded up the construction of production bases overseas. In October, Chery’s plant in Taiwan is expected to go into production. Some assembly facilities elsewhere will also come on stream soon, Jin says.

Rewritten by Raymond Chen based on

article carried by Qiche Ren or Auto Circle

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