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Great Wall’s gamble on SUV

Great Wall chairman Wei Jianjun said on September 19 that the company will temporarily halt development of its passenger car business for at least 3-5 years and turn its full attention to SUVs.

Wei made the announcement at the company’s 4th Annual Science & Technology Festival, about a year and a half after announcing the decision to dedicate its Haval brand exclusively to SUVs.

“We will utilize our limited resources fully on SUVs and make sure that we achieve our brand slogan of ‘focus, dedication and specialization’,” Wei told a group of media. “Our goal is to become the world’s largest SUV producer and the most profitable.”

Wei also refuted recent rumors surrounding the twice-delayed launch of the high-end H8 SUV, clarifying that the major reason causing the delay was purely due to an issue with the rear drive main decelerator, “a common problem with all rear-drive vehicles.”  He quipped that he did not respond to media speculations because “I purposely wanted to create a crisis situation.”

Wei’s decision to give up passenger cars for now comes at a rather rough period for Chinese independent manufacturers.

The market share of China’s independent passenger vehicle brands has suffered a 12 consecutive months of drops, and that of Chinese cars fell below 20 percent in August. Great Wall car sales so far this year have been off by nearly 55 percent to about 64,000 units.

Despite being the SUV segment leader, Great Wall’s SUV sales have also slowed down significantly. August sales growth was up only 3.6 percent compared to the same month of last year, lagging far behind the sector’s average growth of nearly 30 percent. Sales in the first eight months were up only 15 percent, less than half the 34.5 percent growth in the sector. Most of its growth so far this year has been contributed by its star product – the H6 – as the H8 twice postponed its launch due to quality issues.

Combined vehicle sales were off by 9 percent through the first eight months of the year and net profit for the public-listed automaker in the first half of 2014 was down by 3 percent.

Wei made a gutsy decision to temporarily halt his car business. It is a clear indication that the company’s passenger car business has failed so far amidst cutthroat competition. Riding the scorching wave of segment demand for SUVs on China and creating a separate Haval brand for its SUVs last year may have cannibalized its own car sales. 

Now that Wei has made the decision to bet exclusively on SUVs, he and Great Wall must face a number of tough questions. Can the company successfully resolve the H8 issue and launch it on time in January as he expects? Will the H6 remain as a star product for the company once the SUV growth wave subsides? What about the recently launched H2, the soon-to-be launched H9 flagship and other upcoming SUVs? Can they differentiate themselves and perform as expected?

It will take at least a few more years to see if Wei’s bet on SUVs can really pay off and help Great Wall become the largest and most profitable SUV producer in the world. By giving up on the passenger car sector, would Wei face the dangerous consequences of putting all eggs in one basket?

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