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Going upscale: homegrown automakers need quiet, hard work

On March 19, Chery Automobile launched its high-end car brands Riich (Ruiqi) and Rely (Weilin) in Wuhu, its home city. On the same occasion, it announced production start for the first Riich model, the G6.

Homegrown automakers represented by Chery, which have all along paced in the mid- and low-end auto market, are now beginning to tread in the mid- and high-end arena. Is this a result of technological advances they have been making or an outcome of current market conditions?

Chery plans to launch five variants of the high-end Riich in 2009 and sets the target of selling a maximum of 60,000 and a minimum of 50,000 units in the year. Chery has defined Rely as a high-end model for corporate use and regards Riich and Rely as its ticket to the luxury car market in China. The Riich is said to be Chery’s equivalent to Audi under Volkswagen, with its model lineup comprising standard-length cars, hatchbacks, crossovers and SUVs.

The G6, the first Riich model, has indeed attributes of a luxury car. With a 2.8-meter wheelbase and a body length of close to five meters, the G6 is no inferior to any rivals in size. A self-developed 3.6-liter V6 engine provides ample power for the model. Seats covered with quality leather contribute to the G6’s luxurious interior trim. With just one glance, one cannot mistake it as a luxury sedan.

In its march toward the high-end car market, Chery has company. Geely Automobile, another homegrown automaker, has worked out a plan for developing mid- and high-end cars. At the end of last year Geely unveiled the logo for its three new model series, GLEagle, Emgrand (Dihao) and Shanghai Englon (a mashup of England-London). The Shanghai Englon is defined as a classic, luxury car meant for the mid- and high-end market.

Other automakers have also planned to produce before the end of the year high-end cars priced at ¥200,000-¥250,000 ($29,000-$36,000) apiece.

What is the deep meaning of going upscale for the homegrown automakers?

In recent years homegrown automakers have indeed been traveling in the fast lane. According to the China Association of Automobile Manufacturers (CAAM), sales of independent-branded cars totaled 1.308 million in 2008, 26 percent of the total sold. Chery, Brilliance China, Geely and BYD ranked among the country’s top 10 automakers in sales. 

But problems lie behind high growth. Low prices, tiny profit margins and a lack of brand recognition have become the worries of most homegrown automakers. Take Chery for example. Selling 356,000 autos in 2008, it is the fifth biggest automaker in terms of passenger vehicle sales. Its QQ mini cars made up more than one-third of sales. Calculated at about a profit rate of 7.5 percent recorded over the last several years, Chery’s per-car profit averages ¥4,000. Geely’s annual report says its per-car profit comes to ¥2,400 only. Geely says frankly that, although sales of low-priced cars are big, they fail to bring much profit to the manufacturer. By contrast, the high profitability of cars made by joint venture automakers cannot but cause envy among homegrown automakers. At one time in 2003 each Sonata brought a whopping ¥50,000 in profit for its maker, Beijing-Hyundai. In 2007 Guangzhou-Honda’s per-car profit reached as much as ¥20,000. Needless to say, luxury cars reap even higher profits for their makers.

Since their birth, homegrown automakers have always been characterized as producers of small, cheap cars. Naturally, they want very much to improve their image. Their way of achieving this is to march towards the high-end market, raise the value of their models and enhance the image of their brands.

Viewed from either a historical or a realistic angle, going upscale is a necessary choice. A permanent embrace of the low-end means getting enmeshed in a web of one’s own spinning. But will these self-developed mid- and high-end models bring rich profits for their makers? Is the road ahead straight and smooth?

Technological accumulation and gradual development, according to industry specialists, is the right way to achieve continuous progress for a vehicle model or even for an automaker. Every mature international automaker keeps upgrading itself on the basis of technological accumulation. It improves the quality of next generation cars after fully absorbing the mature technologies of the previous generation models. In this process, the automaker goes from low end to high end. This is the way Toyota has traveled. To win recognition for their high-end auto brands, homegrown automakers must enhance their technological strength and improve the quality of their cars.

Customers of the high-end auto market tend to have a high demand and pay greater attention to the quality of services. Although makers of luxury cars have kept improving their services and opened 24-hour service hotlines in China, they remain weak in the provision of aftersale auxiliary services. At present, some luxury car dealerships sell luxury goods such as golf tools and cigars as well as cars; and car manufacturers sponsor golfing activities. Homegrown automakers may well take a similar approach to win customers.

Besides, homegrown automakers are attracted to the market segment for high-end cars for official use, trying to win big orders from government procurers.

But at present they are still at a primary stage. In the development of luxury models, they should refrain from rushing into the luxury segments. And they should be able to live with quiet, hard work.

Honda’s experience in the United States may be of value for Chinese automakers. Honda launched the Acura in 1986 in the United States and sold the car via a separate dealership network. At the time some observers predicated Acura’s early demise. But Honda consistently aimed the Acura at the “sport luxury” segment. The car finally won acceptance in the North American market.

It is on the basis of 40 years of experience that Hyundai Motor Co. has come up with its luxury model, the Rohens. Forty years of market accumulation have now positioned Hyundai at the fifth place in the global automotive industry. Forty years of technological accumulation have enabled Hyundai to join the league of luxury car manufacturers.

Besides, selling the luxury car is not just selling a product. To a large extent, it markets a way of life and represents a cultural pursuit. World-renown high-class cars have this in common: that the most valued about them is not the cars themselves but the brands and what the brands represent. These are the results of slow accumulation.

Homegrown automakers have now made the first step toward the high-end car market. The high-end cars they produce are a national pride regardless of whether or not they are accepted in the marketplace. It is to be believed that, along with technological and conceptual maturing, homegrown automakers will keep making progresses in its march toward the high-end car market.

 Rewritten by Raymond Chen based on

the author’s article carried in the Jiefang Ribao, or Liberation Daily

 

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