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Elusive future of Kaiyi Auto

With a registered capital of ¥2 billion ($321.2 million), Wuhu Kaiyi Automotive Co., Ltd., a joint venture between Anhui Jiangbei Development Co., Ltd., Chery Commercial Vehicle Co., Ltd. and Wuhu Construction Investment Co., Ltd., was established in late January.

Kaiyi Auto, also known as Chery’s “Jiangbei Project” since it will be based in the Jiangbei Industrial Zone near Wuhu, Anhui Province, where Chery is based, will engage in the development, production and sales of light commercial vehicles (excluding passenger vehicles with less than nine seats) and related parts and components.

It is essentially a spinoff from Chery utilizing its assets.

 

Talents and assets from Chery

Three out of the six board members of Kaiyi Auto are former Chery executives. They are Lu Jianhui, former manager of the Cowin Business Department of Chery, Li Congshan, former finance director of Chery, and Xu Hui, former director of the Legal Department of Chery.

Most of the team members in the Cowin Business Department led by Lu have joined Kaiyi Auto. Setting up the new project may be good for Chery in retaining top talents and minimizing instabilities caused by the “One Chery” strategy adopted last year.

The assets of Karry, a microvan brand under Chery, have been integrated into Kaiyi Auto. The Cowin line, which was eliminated as a result of the “One Chery” strategy, will probably be reborn in Kaiyi. Besides existing commercial vehicles, newly designed MPV and SUV models under the Cowin brand may also be produced at Kaiyi Auto. In this respect, Kaiyi Auto is more like a recycle bin or processor of Chery’s outdated models and technologies than a new automaker.

Kaiyi Auto will be a manufacturer of both commercial vehicles and passenger vehicles, reported 21st Century Business Herald, citing a person close to Chery. “Karry brand models and low-end passenger vehicles under the Chery brand will be Kaiyi Auto’s main products,” the person was quoted as saying.

Karry’s product portfolio may be expanded beyond microvans, micro trucks and light trucks to passenger vehicles similar to SAIC-GM-Wuling’s Baojun brand, according to the person.

SAIC-GM-Wuling announced in May that it would sell some Baojun models at select Wuling dealerships in an attempt to promote the Baojun brand by utilizing Wuling’s huge customer base. Karry sells less than 100,000 vehicles a year, far behind Wuling’s annual sales volume of more than 1 million vehicles. Kaiyi Auto is far behind in terms of distribution network compared with Wuling and it remains to be seen whether Kaiyi can develop and be promoted into a new passenger vehicle brand similar to Baojun amid such poor sales of Karry.

Passenger vehicle development has become Chery’s top priority in recent years, leading to a lack of competitive commercial vehicles. Transferring some passenger vehicle technologies to Kaiyi Auto may be conducive, to some extent, to model upgrade and market expansion of the commercial vehicle brand, according to a 21st Century Business Herald’s analysis.

Chery has been attempting to go public in recent years but progress has been slow due to weak profitability. Stripping non-performing assets and integrating Karry into Kaiyi could help Chery overcome obstacles on its IPO path, according to 21st Century Business Herald.

 

Bumpy road

Kaiyi Auto is a result of government and corporation tie-up, wrote Jiangnan Xiaosong, a local automotive analyst, on auto.sina.com.cn.

Automobile and equipment manufacturing are pillar industries for the economy of Wuhu. Kaiyi Auto is formed because the local government wants to build a new automotive project to further stimulate economic development of the city’s Jiangbei Industrial Zone.

Chery’s expertise, technologies and assets may help Kaiyi Auto avoid detours in the initial stage of brand building. However, these properties will also be Kaiyi Auto’s burden because Karry and Cowin, two low-end brands of Chery, are weak in brand image and are not competitive in the market, according to Xiaosong.

Boosting sales of the Karry and Cowin brands will be very difficult for Kaiyi as local brands face increasingly difficult market environment in China. According to China Association of Automobile Manufacturers (CAAM), China sold 596,900 local brand passenger vehicles in April, down 11.15 percent from the previous month. The sales accounted for 37.09 percent of total passenger vehicle sales in China, declined 2.19 percentage points month-on-month and 2.53 percentage points compared with the same period of last year.

Xiaosong believes that Kaiyi Auto is unlikely to attract customers just on price alone. A price war among local brands is escalating. Many of the brands are suffering heavy losses. Besides, leading multinational automakers such as Volkswagen and Nissan are planning to launch vehicles below the ¥50,000 price range in China. As a new brand, Kaiyi probably cannot survive the price war.

Kaiyi Auto could repeat the failures of the Riich, Rely and Karry brands – brands that Chery has decided to ditch – if its development only relies on Chery’s outdated technologies and marketing measures without innovation.

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