Global marque still eludes the Chinese

Financial Times, June 1, 2010

Last year, more cars were sold in China than anywhere on Earth, but only one-third of them were Chinese brands. That means two-thirds of mainland drivers do not want a Chinese car – hardly a vote of confidence in domestic brands.

As the balance of power in the global car industry shifts to the east, motor manufacturers are watching closely for the emergence of a globally competitive Chinese car brand.

Last year was a watershed for Chinese carmakers as their domestic market took first place globally and local carmakers bought some or all of famous foreign brands such as Saab and Volvo.

But building a world-famous Chinese car marque remains a distant dream, say car analysts.

“Chinese car companies must first convince Chinese consumers of the quality of Chinese-branded cars before they can expect wide acceptance in overseas markets,” says Bill Russo, head of Synergistics car consultancy in Beijing and former head of Chrysler in China.

Ivo Naumann, of motor industry advisers Alix Partners in Shanghai, says there will not be a major global Chinese brand with significant market share in a leading market outside China in the next five years or so, though he says he is “absolutely sure that it will happen some day”.

But that is an improvement. Until recently, when asked how soon a Chinese brand could reach globally competitive status, car industry analysts and insiders used to say it would take a generation.

“It took the Japanese decades, it took the Koreans a decade, it probably will take the Chinese less,” says Mr Russo. “[In] one or two product cycles – in 5-10 years – we will see Chinese-branded cars in the mature markets.”

China’s carmakers have made good progress towards that goal. Last year, the local market grew 45 per cent. The share of Chinese companies has risen from 21 per cent in 2004 to 32 per cent in 2009. Mr Naumann expects them to add another 5 percentage points by 2015.

China’s carmakers have developed. Those that previously had a limited range of models can now span the full spectrum, with the number of domestic models rising from 53 in 2006 to 159 last year.

But their approach to branding is “not yet mature” says Mr Russo. He says that while Geely and Chery, two private carmakers, are furthest along in articulating a branding strategy, “they still have to prove that their cars actually represent something more than just lower-priced alternatives to foreign-branded cars”.

Geely, whose parent company recently bought Volvo, is under no illusions that it can use the Swedish brand to sell Chinese cars in western markets. In fact, it is so worried about the reputation of Chinese brands abroad, that it plans to keep Volvo production and research and development in Europe for the foreseeable future. The move is designed to help sales, not just in Europe, but in China too, where foreign brands still command a premium.

Wang Fengying, chief executive of Great Wall Motor, the first Chinese carmaker to win regulatory approval to sell its vehicles throughout the European Union, says China will struggle to export its cars to Europe or other developed markets until it first overcomes the stigma of the “Made in China” label.

Ms Wang says “it could take 20 years” before the country’s brands can reach true global competitiveness.

She argues that it may not take China as long to establish a global brand as it did Toyota, “but it would be hard to establish a brand like Toyota in a short time”, she says.

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