China's Great Wall Motor Is Built on SUVs

Bloomberg Business Week, July 25, 2013

Wang Jiangwei spent last summer sweating through a month of military drills—everything from marathon runs to rigorous calisthenics—conducted by Chinese People’s Liberation Army instructors. But Wang isn’t a soldier; he’s a researcher at Great Wall Motor (2333:HK). The training program is a creation of Great Wall’s quirky founder, Chairman Wei Jianjun, who has built China’s biggest maker of SUVs with a leadership style that stands out for its emphasis on discipline and frugality usually more common to the military.

Courtesy Great Wall MotorsChairman Wei Jianjun

Training isn’t the only area where Great Wall marches to a different drummer. Big Chinese rivals such as FAW Group and SAIC Motor (600104:CH) often team up with foreign automakers, including Volkswagen (VOW:GR) and General Motors (GM), tailoring their models to affluent Chinese drivers’ taste. But under Wei, Great Wall has mostly developed homegrown products on its own aimed at China’s masses. That allows it to operate without splitting profits or enduring the extra bureaucracy of joint ventures.

The go-it-alone strategy has worked handsomely for Great Wall’s investors: Its stock has surged more than sixtyfold since a low in 2008. That runup has made Wei the wealthiest car executive in Asia, with a fortune of $6.5 billion and a grand plan to create China’s first global automotive brand. “I don’t pay much attention to share prices,” says Wei. “I care more about the real business.”

Car experts take the entrepreneur seriously. “If there are one or two automakers able to survive all the competition with foreign rivals in the next decades or so, Great Wall will definitely be one of them,” says Bill Russo, formerly vice president of Chrysler Northeast Asia and now president of automotive consultant Synergistics in Beijing. He says the company could become the next Hyundai Motor, which has grown from a modest maker of cheap cars into a full-line global manufacturer.

Wei has begun bolstering Great Wall’s research capability to develop the sophisticated engine and propulsion components he’ll need to become a player outside China. He wants to double sales to 1.3 million vehicles by 2015. His longer-term goal: to outsell Chrysler Group’s Jeep brand globally.

Great Wall lacks the revenue heft of many major rivals because its cars are far cheaper: Its Haval H5 SUV costs 92,800 yuan ($15,124), a fourth the cost of an Audi (NSU:GR) Q5 built in China. But the SUV specialist’s low costs—in part because of cheaper plant equipment and minimal research and development in the past—have given it rich operating margins that beat even lucrative outfits such as Fiat’s (F:IM) Ferrari sports car unit. Great Wall will probably lead all automakers’ margins globally this year, at 16.4 percent, says Max Warburton, an analyst at Sanford C. Bernstein (AB).

The company’s net income had been expected to rise 24 percent, to 7 billion yuan, this year after surging 66 percent in 2012, according to an average of 16 analyst estimates compiled by Bloomberg. But the company on July 23 told Hong Kong’s stock exchange that net profit for the first half of 2013 rose 73 percent on strong sales and expanding margins.

Wei, born in Baoding in 1964, says he was greatly influenced by his father, an artillery soldier who went on to make boilers. After several factory jobs, Wei took over a small car-modification business at age 26 and turned it into a van maker. He shifted focus to pickup trucks after seeing their popularity in Thailand. Small business owners and farmers favored Great Wall’s Deer, making it China’s most popular pickup by 1998. Then antipollution laws limited truck use in major cities, prompting Wei to switch to SUVs. Today, SUVs make up nearly half of Great Wall’s sales—and for the 11th year it’s poised to lead China’s crowded SUV market, its auto industry’s fastest-growing segment.

Russo recalls that during a trip Wei made to Chrysler’s headquarters in 2008, he was asked by Thomas LaSorda, then Chrysler’s chief executive officer, why Great Wall didn’t join Chinese carmakers in showcasing vehicles at the Detroit auto show. Wei replied the company wasn’t ready, Russo says. “They don’t try to overreach,” he says.

Wang Fengying, Wei’s top sales chief since he recruited her in 1991, is further evidence of Great Wall’s unconventionality. Both her age—she wasn’t yet 21 then—and gender were unusual for a Chinese manager. Wang, now 42, says she doesn’t shy away from telling her boss he’s wrong. “We argue all the time,” Wang says. “Our goals are the same, so we can always find common ground.”

Wang says five years ago she opposed the rollout of the Gwperi subcompact endorsed by Wei. He overruled her—only to see the car flop after buyers found it too small and pricey. The debacle is engraved in red on Great Wall’s two “Boulders of Shame” in Baoding; one lists major product failures, and the other identifies four officials who’ve been jailed for accepting bribes.

Wei has other eccentricities, according to Zhang Yun, an outsider who’s advised him for five years on marketing. The billionaire is so frugal he smokes 10-yuan-a-pack Zhongnanhai cigarettes. He once scolded some dealers for leaving too much food after a meal. He sleeps most nights in a room next to his office.

Then there’s Wei’s discipline. Rather than the touchy-feely leadership exercises espoused by some management gurus, Great Wall makes recruits and those receiving promotions endure marching drills, push-ups, and hours standing together in the hot sun. The idea is to build endurance, increase willpower, and develop the team spirit that compels employees to push harder for the company’s success. “I have gone to other factories in China, and when it’s time for lunch everybody runs to the cafeteria at the same time,” says Russo. “They don’t do that at Great Wall.”

Chinese carmakers are a decade away from delivering their first globally competitive vehicle, Warburton says, but that’s only one or two product cycles in the auto industry. Great Wall’s H5 drives well, he says, yet suffers from “truly awful” vibrations in its gearbox and poor braking. But the newer H6 model shows a “massive leap forward” in quality, according to Warburton.

Wei acknowledges that Great Wall’s ability to develop better, and likely pricier, technology will determine its future. “We have to own core technologies and make breakthroughs,” he says. “The biggest risk we’re facing is possible complacency.”

The bottom line: Great Wall Motor, China’s No. 1 SUV maker, has operating margins of 16 percent. That’s the highest of any carmaker.

With Michael Wei

Click here to read the article at businessweek.com

Ferrari-Beating Great Wall Shows Wei Forging Next Hyundai

Bloomberg News, July 4, 2013

Wei Jianjun, chairman of Great Wall Motor Co., has become Asia’s wealthiest car executive, with an estimated fortune of $6.6 billion as he strives to create China’s first global automotive brand.

Wang Jiangwei recalls spending last summer sweating through a month of military drills conducted by Chinese People’s Liberation Army instructors. Wang isn’t a soldier; he’s a researcher at Great Wall Motor Co. 

His Baoding, China-based employer is so profitable, it generates a fatter margin than any listed carmaker in the world. Behind the success is Chairman Wei Jianjun, who has built China’s biggest SUV maker with a leadership style that stands out for its emphasis on discipline and frugality.

“The military training is pretty serious and tough,” said Wang. “Not only new hires but people who get promoted, even those becoming department heads, need to redo training.”

Great Wall represents a rare breed of Chinese automakers independent of foreign partners and government, sparing it from having to split profits and endure extra bureaucracy. With the stock surging more than 60-fold (2333) since its 2008 low, Wei has become Asia’s wealthiest car executive, with a fortune of $6.5 billion as he strives to create China’s first global automotive brand.

“Wei is a real professional, a real entrepreneur,” said Bill Russo, formerly vice president of Chrysler Northeast Asia and now president of automotive consultant Synergistics Ltd. in Beijing. “If there’s one or two automakers able to survive all the competition with foreign rivals in the next decades or so, Great Wall will definitely be one of them.”

Next Hyundai

Great Wall could become the next Hyundai Motor Co (005380)., the Seoul, South Korea-based automaker, he said.

The stock rose 6.2 percent to close at HK$34.25 in Hong Kong today after Janet Lewis, a Hong Kong-based analyst at Macquarie Group Ltd., raised her 12 month target price by 37 percent to HK$45.30.

Wei, who’s $1 billion wealthier than Hyundai Chairman Chung Mong Koo on the Bloomberg Billionaires Index, has signaled Great Wall will eventually outsell Chrysler’s Jeep globally and is targeting sales to double over three years to 1.3 million vehicles by 2015.

Though lagging behind major automakers in scale, low costs help its operating margin beat everyone -- even Fiat SpA (F)’s Ferrari. It will probably top the industry this year at 16.4 percent, according to Max Warburton, an analyst at Sanford C. Bernstein.

Asbestos Recall

Chinese automakers are a decade away from delivering their first globally competitive vehicle, though that’s only one or two product cycles in the auto industry, Warburton said. He hired specialists to tear apart and test a Great Wall H5 for a report in February and found the SUV’s gearbox had “truly awful” vibrations and braking was poor, though it drove well. Despite the H5’s shortfalls, it made a “massive leap forward” in quality with the newer H6, he wrote.

While the company has had its share of growing pains -- it recalled thousands of vehicles in Australia last year after regulators found asbestos in parts -- Wei said Great Wall’s ability to develop technology will determine its future.

“We have to own core technologies and make breakthroughs,” Wei said in an interview during a plant tour on May 31. “The biggest risk we’re facing is possible complacency.”

Net income will probably rise 24 percent to 7 billion yuan ($1.1 billion) this year after surging 66 percent in 2012, according to the average of 16 analyst estimates compiled by Bloomberg.

Wei, born in Baoding in 1964, said he was greatly influenced by his father, an artillery soldier who ventured out on his own to make boilers.

Great Deer

After several factory jobs, Wei branched out. At 26, he took over a small car-modification business and turned it into a van maker. He later shifted focus to pickup trucks after witnessing their popularity in Thailand. Small business owners and farmers turned Great Wall’s Deer into China’s most popular pickup brand by 1998.

Then anti-pollution laws restricted trucks in major cities, prompting Wei to switch to SUVs. Today, the company relies on SUVs for almost half its sales and is poised to lead the nation’s crowded SUV market, the fastest growing segment of China’s auto industry, for an 11th year.

The billionaire also knows when to wait, said Russo, recalling when Wei visited Chrysler LLC’s headquarters in 2008. Asked by Tom LaSorda, then CEO of the Auburn Hills, Michigan-based company, why Great Wall didn’t join Chinese carmakers in showcasing vehicles at the Detroit auto show, Wei replied they weren’t ready, Russo said.

“They don’t try to overreach,” he said.

’Boulders of Shame’

As Great Wall grew, Wei recruited Wang Fengying, 43, his top sales chief for the past two decades, who says she doesn’t shy away from telling her boss that he’s wrong.

“We argue all the time,” Wang said in an interview. “Our goals are the same, so we can always find common ground.”

Wang said five years ago she opposed the rollout of a Gwperi endorsed by Wei, who overruled her, only to see the subcompact flop. The debacle is engraved in red at Great Wall’s two “Boulders of Shame,” where one lists major failures in product development and the other identifies officials who have been jailed for accepting bribes from suppliers.

Donkey Burgers

Wei has more eccentricities, according to Zhang Yun, who has advised him for five years on strategy. The billionaire is so frugal he smokes 10 yuan-a-pack Zhongnanhai cigarettes and once scolded a group of dealers for leaving too much food on the table after a meal, Zhang said. He sleeps most nights in a room connected to his office and starts work at 7 a.m. in a gray uniform, Zhang said.

Then there’s the discipline.

In Baoding, famous for donkey burgers and home to the oldest military academy in modern Chinese history, Great Wall makes recruits endure foot drills and push-ups. The idea is for them to build endurance, increase willpower and understand the corporate culture, according its website.

“I have gone to other factories in China and when it’s time for lunch, everybody runs to the cafeteria at the same time,” said Russo. “They don’t do that at Great Wall.”

Click here to read the article at Bloomberg News