News Analysis : Zoom, zoom, splutter…The Economist on the Chinese car industry

Carole Nash Classic Insurance Specialists

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-Motor-LogoSAIC’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.

The Shanghai Volkswagen Lavida - a SAIC VW joint venture built off the ever popular Golf Mk 4 platform
The Shanghai Volkswagen Lavida – a SAIC VW joint venture built off the ever popular Golf Mk 4 platform

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.

SAIC's Roewe 750 - doesn't it look familiar?
SAIC’s Roewe 750 – doesn’t it look familiar?

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.

The Roewe 550 - China's Rover 45?
The Roewe 550 – China’s Rover 45?

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.

Is the MG3 the Chinese industry's answer to cracking Europe?
Is the MG3 the Chinese industry’s answer to cracking Europe?

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.

Clive Goldthorp

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

25 Comments

  1. Hmm… Not too encouraging.

    I think the tiny dealer network must be a big limit to UK sales. I mean, the 3 has been advertised on TV a fair bit and the 6 as a British Touring Car competitor must have a positive promotional effect. I think many potential buyers of the 3 will have seen the advert and thought “Oh, I’d have one of those if the nearest dealer wasn’t 47 miles away”

    Still, I’m now working next door to Graham Walker, the MG dealer in Chester. I ain’t even seen one out for a test drive in the past 5 weeks. God, he’ll love me when I place my order in the next 2 or 3 months!!

  2. The Economist usually provides something new, but there isn’t much there we didn’t already know.

    Btw, my local MG dealer has been selling 1 or 2 MG3s a week, often having to sell the showroom demonstrator to keep up with demand. While I waited for my car to be serviced, I saw a customer come and drive away the showroom car.

    • I suppose I’ve been in the office too much to really notice how many MGs Graham Walker may actually be shifting. Still, I ain’t seen any about when only a couple of miles or less from his showroom. I’ve been similarly surprised not to see a glut of MG3s, MG6s when visiting Longbridge.

  3. From what I have seen with the mg6 they are trying to sell a 12 grand car for a lot more. It just isn’t good enough against the very stiff competition to justify its high price. Mediocre performance, slightly poor economy and high co2 emissions and from a company that is new to the uk.
    The mg3 on the other hand is a better bet..it’s what they should have launched first, appealing more to the younger private buyer and hire companies.

  4. The size of the business in China is huge. Any inroads that SAIC will make into the UK or even Europe will be tiny in comparison. SAIC have noticed their Chinese market’s preference for western brands and bought their own at bargain price. Their Chinese marketing MG = “Modern Gentleman” etc. demonstrates their desire to use MG’s history. I believe that the primary purpose of the MG UK operation is to support this business plan. The question is “Why are Chinese buyers not attracted to MG in sufficient numbers?” Have they noticed that the marketing is simply that?

  5. The Chinese car industry is still finding its feet.

    It took years for the Japanese and Koreans, firstly building western models under licence, then building basically copies of the Western models, now they’re doing well.

    And given that many will see Western brands as desirable, in the same way as UK car buyers inexplicably see German brands as desirable, imports / joint ventures will sell well.

  6. Ive grown to like the styling of the MG’s. But they are still too expensive for a “new” car maker on the block. IN NZL for example you can buy an MG6 or an MG3, but they aren’t that much cheaper than the competition….and would you spend that money on a car when there are only a hand full in the country? I think MG need to get real with the pricing in the short term, get the cars for sale cheap for a short time and get lots of them sold….then put the price up once they have proved themselves. alex

    • I certainly wouldn’t describe the MG3 as expensive.

      I know they’re in a different size bracket, but I can’t wait to see the look on my sister’s face when she first sees my MG3 and realises what I’ve got for a fraction of the price of her (rather dull looking, black) VW Golf.

  7. Interesting. Why would the Chinese buy Chinese brands when they can have home-made western brands with proven reputations? This is the difference between the genesis of a Chinese car industry and those in Korea and japan isn’t it? I know Nissan started making Austins, and Kia building Mazdas, but they moved fairly quickly to their own designs. In China it seems to have taken longer, and the original western branding was retained in China so there hasn’t been a seemless transition for a home brand from western models to Chinese ones. You can see the disincentive to invest for the likes of SAIC if they can make good money making and selling foreign-designed cars. Which brings us to the Government, who presumably would like the world to be buying chinese-branded product. Given this is a country with a dodgy record of human rights, and very limited democracy, I won’t mind if they don’t achieve this.

  8. Why can’t they just reintroduce the Rover 75 aka Roewe 750. That was a very fine car, (I had one), and ideally suited to our pot-holed roads as the ride was superb.

    • They probably could, just as NEVS is (rather frustratingly) producing the 9-3 in drips and drabs.

      As it wouldn’t pass the latest Euro conformance (as per the 9-3) it would be limited to a small amount of units produced (1000 IIRC).

      Would it likely sell? Yes if it is cheap it could, but the MG6 sales shows that there is little appetite for a large saloon of MG-Rover origin.

  9. Apparently for some, the inestimable snob-appeal of the MG badge triumphs over using one’s noggin and logic. Yes, this underachieving hatchback made in China and knocked together by 20 blokes in a formerly disused huge shed is completely worthy of one’s hard- earned cash.

    ” Btw, my local MG dealer has been selling 1 or 2 MG3s a week, often having to sell the showroom demonstrator to keep up with demand.”

    I had a belly laugh over this one! Wow, it’s a veritable knockout sales success. One or two a week – could things be any rosier? “Hey, Fred, shine up the demo, we’ve sold it to another nuclear scientist!”

  10. @Ianto – And indeed thank god for Tata and all it has done for JLR. As for Longbridge, perhaps this could be an opportunity for this piece of prime industrial real estate to actually be put to some productive use.

  11. SAIC needed to learn from the benchmark of TATA and develop truly European Brands like Jaguar or Land Rover and then let their own brand “Roewe” piggyback of it. However they made a Chinese car and put a European badge on it. That business plan has proved to be a big mistake. I hope they figure it out soon for the sake of Longbridge.
    Now TATA/JLR are jointly developing cars with Chinese firm Chery.
    http://www.cheryjaguarlandrover.com/corporate_introduction

  12. Everyone in all 186 countries of the world are in an absurd pursuit : to buy an automobile with the proven German qualitàt at a Chinese price .

    • Easy, buy a good brand quality vehicle at 9-12 months old and save 30% on list price. Let someone else take the silly money depreciation.

      • My Dad did that with a Mondeo after he retired from full time work.

        It lasted 9.5 years with nothing serious going wrong.

    • Because it’s being done with its joint ventures building VW and GM product in VW and GM managed factories using GM’s and VW’s supply chain, whilst its own products are losing ground in the market and money.

      This may not appear serious, but is for SAIC, because everybody knows that China market cannot remain protected for ever, free trade agreements etc will mean that at some point not too distant future GM and VW will be able to have its own plants in China. Then what will SAIC do?

  13. Interesting. After BMW asset-stripped Land Rover and Mini, Rover’s only real chance of success was a proper collaboration with a Chinese manufacturer. Then the Chinese manipulated the bungling Phoenix directors into letting their existing assets go because they felt they could thrive with a brand they little understood alone. Turns out they were wrong, and would have done better being more honorable. Quite makes me smile…..

    • The only problem with your premise is that BMW didn’t asset-strip anybody. British Aerospace had already done that. BMW simply wanted a sub-BMW brand, with a cheap, reliable, workforce. That was what they got – MINI and Cowley. Beyond that, they knew what a money-pit Land Rover was at the time, and that the Rover brand was a lost cause. BMW actually acted pretty well, considering the money they laid out.

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