Formerly Budget-Focused Brands Like Geely Shifting To Lucrative High-End Consumer Segment
The Wall Street Journal has a great profile today about Chinese auto brands that have shifted 180 degrees in the last few years, changing their target market from the younger, budget-conscious first-time car buyer to wealthier buyers who may already own one or more vehicles. This represents a very significant change in tactic on the part of Chinese automakers, who until recently had all but given up on this consumer bracket, apparently convinced that it would be impossible to compete with foreign luxury carmakers like Mercedes and BMW, two brands that have made commanding inroads in the China market.
The article uses the example of Chinese carmakers’ increased confidence in the Shanghai Auto Show, where Geely and Chery surprised more established global automakers by rolling out new high-end vehicles from their GE and Riich sub-brands, respectively. Although both brands intend to keep their budget-friendly models as their bread-and-butter, at least in the near term, a broader push towards higher-profit, higher-end luxury vehicles looks to be inevitable. As China’s middle class continues to grow, and with that growth demands more bang for their buck, domestic automakers are going to have to offer an attendant jump in quality, features, and competitiveness. In short, quality, design, branding and marketing will have to move fast if China’s automakers are going to be able to not only compete with the dominant foreign brands, but if they are to convince domestic buyers that China’s automakers can offer the same performance and quality — something that sounds easy, but has so far proven elusive. Part of this jump in quality is expected to come from some large-scale acquisitions that Chinese automakers look to complete as the global economic downturn creates some once-in-a-lifetime buying opportunities in the auto market.
As the Wall Street Journal writes,
Frank Zhao, Geely’s chief technology officer[,] says that larger and better cars are essential to Geely’s “sustainable development.”
On Wednesday Geely submitted a bid to acquire General Motors Corp.’s Saab unit, people familiar with the situation said, a move that comes just weeks after it submitted a separate bid for Ford Motor Co.’s Volvo, also based in Sweden. Acquiring the companies or some of their car and technology would jumpstart Geely’s upscale strategy.
However, buying up discounted assets at a bargain price in order to upgrade technology is no long-term strategy. Although Geely will upgrade, so will foreign automakers — technology is only one part of the puzzle. Convincing the domestic market to buy an expensive domestic car is another beast altogether:
Manufacturing higher-end cars — on which companies generally earn more money — will expand the product lines of domestic makers and force needed improvements in their craftsmanship and quality. A tonier image could also help add branding luster to the companies’ lower-end models.
“It’s something they have to do,” says Yale Zhang, an analyst with auto consultancy CSM Worldwide in Shanghai.
“We used to focus only on the mass market,” says Jin Yibo, Chery’s spokesman. “The next step in our strategy is to develop middle to upscale brands.” Mr. Jin said that “medium to high-end brands will turn out higher value added for the company” and help improve designs and competitiveness.
One problem is that the Chinese name plates lack the cachet of foreign cars, especially among the country’s most affluent consumers, who have made China an important market for Mercedes-Benz, BMW and Audi autos. Local makers appear to be aiming primarily at the rungs below these luxury brands, and are pricing their products below comparable models of foreign brands.
Chinese manufacturers’ marketing approach is tailored to the local market, with the at-times blunt messages about wealth and success that play well here, such as Chery’s choice of name, Riich.
In the longer term, however, many of these Chinese companies have their sights set on foreign markets — an area in which these automakers are at a significant disadvantage. Their cars are still relatively unknown overseas, and catching up to the well-established brands produced by neighboring countries Japan and South Korea will be no small feat. Over time, though, Chinese automakers hope to get to these markets somehow, whether that is through niche marketing, price, or full-on advertising blitzes. At the moment, these automakers are taking a tiered approach to reaching foreign markets — Establishing themselves more solidly first in developing markets, then spreading to developed markets later:
Chery, which now exports smaller cars, says it intends to sell the Riich G6 overseas eventually, but is still unsure when it will start. Chinese auto exports had been climbing until the economic crisis started crimping consumer spending last year. Chinese companies sell compacts, sedans and SUVs to Russia, Ukraine, Vietnam and elsewhere, largely in the developing world.