In the news… An interesting view from last weekend’s The Economist – you can view the original article here.
It’d be interesting to see what AROnline readers think…
The Economist 8th November, 2014SAIC’s domestic brands are unloved – a problem shared across the industry. China’s biggest carmaker does not seem to be doing so badly, a first glance at SAIC’s third quarter results on October 30th would suggest. Net profits rose by nearly 5% compared with a year earlier, to 6.8 billion yuan ($1.1 billion). But SAIC, like the country’s many other domestic car firms, is not firing on all cylinders and is far from living up to the hopes the Government has invested in the state giant. SAIC makes a quarter of the vehicles that crawl along the country’s congested roads. In the third quarter it sold 1.3m cars, 9% more than a year earlier. Overall Chinese demand, tempered by a cooling economy, grew by just 4%. But SAIC’s success was mostly due not to cars bearing its own badges, but Volkswagen and General Motors models, made in factories jointly operated with these two Western giants.
Foreign carmakers were forced to collaborate with Chinese ones as the price for entering what is now the world’s largest automotive market. SAIC’s partnerships with VW and GM are flourishing, as are the other Chinese-foreign joint ventures. The Government had hoped that, by now, domestic firms would have absorbed all they needed to know from the foreigners about making and selling world-class cars, and be ready to get by without them. But the success of the joint ventures has made the Chinese firms complacent. They have failed to develop their own technology, styling or marketing capability. SAIC has long been losing money on its own-brand cars, which sell under badges such as Roewe and MG (the latter a faded British brand it bought along with other parts of the collapsed Rover Group). In the latest quarter the losses rose sharply, to around 2 billion yuan. A vicious circle has set in: the poor financial performance of Chinese firms’ own brands has sapped their will to invest in research and development to improve their performance on the road and in the showrooms. Little wonder, then, that Chinese motorists spurn pleas for patriotism and covet foreign-badged motors.
The Government has tried to fix the problem by pressing the foreign carmakers to work with the locals to create new brands combining international flair with Chinese characteristics. So far this has made little difference: Chinese brands account for only about one-third of domestic sales, and their share continues to dwindle.
Chinese vehicles have not travelled well. Exports, mostly to poor countries where drivers care about price more than image, were fewer than 600,000 in 2013, 10% lower than the year before. SAIC’s hopes that Rover Group’s brands and technology would help it do better in rich countries have yet to be met. Three years after it relaunched the MG brand in Britain, it is selling just a few hundred cars a month there. Likewise Geely, a smaller Chinese maker, has yet to see much benefit from buying Volvo of Sweden.
China’s carmakers are still trying to improve. A recent survey from JD Power, a market-research firm, shows that the quality gap with foreign rivals is closing. The Chinese firms are busy hiring Western designers to make their models more distinguished. But like many of its peers, SAIC lacks foreign managers who have the skills to market cars abroad and set up the service networks that buyers expect. No wonder the Government’s ambition for China to boast two or three world-class car firms, with badges as recognisable as Toyota’s or Ford’s, remains a distant dream.
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