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Furuida benchmarking Hongguang: Xu Heyi’s hope for Changhe

“Our direct competitor is Wuling.” On August 26, Changhe Automobile officially launched its first microvan Furuida M50S with a suffix marked “Beiqi,” short for Beijing Automotive Industry (Group) Corp. (BAIC) in Chinese.

A Beiqi insider confirmed that Changhe is executing its plan to benchmark Wuling.

“We have been rebuilding Changhe since our acquisition,” the insider said. The year 2015 will initiate Changhe’s “product years.” In the following three years until 2017 Changhe will introduce 17 new vehicle models, including three flagship vehicles.

Despite market downturn this year, Changhe’s development plan to sell 1 million vehicles by 2020 has not changed, according to the insider. Beiqi’s strategy for independent brand development is to make Saab and Changhe its flagships, just like how Roewe and Wuling are positioned for SAIC.


Xu Heyi re-engineers Changhe

The Changhe Furuida M50S is currently benchmarking SAIC-GM-Wuling’s Hongguang. At the corporate level, Changhe takes upon Wuling as its benchmark.

The Hongguang S1 is an upgraded version Hongguang, a “super car” which realized peak annual sales of 100,000 units. But the launch on August 18 of the S1 at a higher price than Hongguang opened up opportunity for the Furuida M50S, according to an insider.

The S1 is priced at ¥60,080-¥69,800 ($9,536-$11,080), much higher than the Hongguang S with a start price of ¥44,800. With the discontinuation of the S, the market segment for microvans priced at ¥47,900-¥56,900 has opened up. “This segment has a monthly demand of 30,000 units, which is Furuida M50S’ target,” said the insider.

After the acquisition of Changhe at the end of 2013, Beiqi became Changhe’s “blood transfusion line” and invested as much as ¥5 billion during the first phase of Changhe’s reconstruction in Jingdezhen, not including billions spent in product development. The Jingdezhen plant has started the second phase expansion to be completed by the end of 2017. It will have an annual capacity of 300,000 vehicles and 300,000 engines. By the end of 2018, Changhe plans to manufacture an additional 150,000 vehicles.

After the Furuida M50S launch, Changhe will introduce a series of vehicles, including crossovers, A0-, A- and B-class sedans, SUVs, MPVs, plus new energy vehicles.

If all goes smoothly, there will be an A0-class SUV and a face lift of 2016 Liana model. Next year will see the arrival of the Q35, an A-class sedan, the Big Dipper X5 and a B-class SUV in the market.


Line of products to model on Wuling+GM

After the acquisition of Changhe, Beiqi chairman Xu Heyi and president Zhang Xiyong have been visiting Jingdezhen, Jiangxi Province on a monthly basis. In the first half of this year, Beiqi has sent a pool of personnel to Changhe to work on marketing, financing and management.

Starting with the Furuida M50S model, all Changhe vehicles will have Beiqi in the logos.

Changhe Automobile, according to Xu Heyi, will be a crucial part for the Beijing-based automaker to realize the “Beiqi Dream.”

Like most domestic automobile groups, Beiqi is also weak with its independent brands. After going public in Hong Kong at the end of 2014, BAIC Auto has depended mostly on joint ventures, Beijing-Hyundai and Beijing-Benz, for revenue and profits. Its independent brands contribute little to BAIC Auto’s stock market performance.

To change the situation, Xu Heyi has adopted a new strategy for Changhe, namely the fusion of the Saab + Changhe brands, benchmarking SAIC’s “Roewe + Wuling,” with Saab being positioned as high-end brand and Changhe positioned as a popular and “super car” brand.

Changhe Auto and Changhe-Suzuki combined would be equivalent to SAIC-GM-Wuling and Chevrolet’s Sail combined. The Furuida will benchmark Hongguang, the Liana the Sail and the Big Dipper the Baojun Spark. Together with other follow-up vehicle products, Changhe has finalized product planning. They are aware that sales of the Wuling and Sail total about 2 million.

A Changhe insider revealed that the secret for Wuling’s success is to have a firm grasp on consumer mentality.

“SAIC-GM-Wuling always incorporates customer needs in product development, even two or three years ahead of its vehicle launch and the vehicles in turn can influence consumer’s buying habits,” said the insider. Currently, SAIC-GM-Wuling has 2,000 dealers. If each dealer sells five units of a new vehicle, it would mean 10,000 in sales.

The gap between Changhe and Wuling is still large. “Last year we opened 80 new dealers and we will add 40 more this year,” the insider revealed. But Changhe will need to enhance its distribution system and supporting capacities and to reduce costs. There is still a long ways to go to catch up with its competitor.

However, Changhe believes that it has its own advantages. First, Changhe brands are known in the market. Second, China’s slowing market has been benefiting demand of A-class and A0-class SUVs. The growth in demand for the A0-class SUVs has reached over 100 percent. The same is also true for A-class MPVs.

In comparison there has been a fast decline in sales of joint venture A-class sedans. In the first half of this year, the A-class sedan segment had a negative growth of 10 percent, which had directly affected Shanghai-Volkswagen’s Lavida, Santana and Lamando sales.

The changing market demand creates a great opportunity for Changhe now that it has already planned for its SUV and MPV products after the acquisition by Beiqi.

No doubt JV companies will fight for the low-end vehicle market. Volkswagen, for example, is getting ready to produce low-end cars that will sell for around ¥50,000 in China. It is also targeting the low-end SUV and MPV segments. SAIC-GM’s Sail is directly competing with independent brands.

“Changhe needs to seize the current opportunities and utilize Beiqi resources in order to grow independent brands,” the insider said. But Changhe’s grandiose plan for new vehicle products face no small pressure from competitors.

(Rewritten by Mark Ge based on author’s article published in 21st Century Business Herald)

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