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.”

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Chery Hires Porsche Designer to Oversee Car Design From Shanghai

Bloomberg News, February 25, 2013

Chery Automobile Co., the state- owned Chinese maker of the low-cost QQ mini car, hired Hakan Saracoglu from Porsche AG to head its design center in Shanghai in a bid to improve its styling.

Saracoglu, 47, joined Chery as design director in October, according to the Wuhu, Anhui province-based automaker. The Turkish-born German national worked for 15 years at Porsche, where he helped design the exteriors for models including the 918 Spyder, Boxster and Cayman.

Chery is the latest among Chinese automakers hiring foreign designers to help boost their brand image and reverse a loss in market share to overseas automakers such as General Motors Co. (GM) and Volkswagen AG. (VOW) The hirings are part of a broader hunt for international talent, with salaries for foreign auto engineers in China reaching three times that in the U.S. and Europe, according to Sanford C. Bernstein & Co.

“Having somebody with a known profile gives you more credibility,” said Bill Russo, Beijing-based president of auto consultancy Synergistics Ltd. “But it’s going to take a long time to really embed those capabilities.”

Other Chinese companies have also looked abroad for help with styling. Beijing Automotive Group Co., which traces its roots to producing sidecar motorcycles for use in the Korean War, hired Ferrari Daytona designer Leonardo Fioravanti as chief design officer last year.

Foreign Designers

Great Wall Motor Co. (2333), China’s biggest maker of sport- utility vehicles, appointed former Mercedes-Benz designer Andreas Deufel as design director in 2011. Former Volvo Car chief designer Peter Horbury joined Zhejiang Geely Holding (175) Group Co. the same year as senior vice president in charge of design.

Saracoglu, who said he had never visited China before being approached by Chery, started his career at Ford Motor Co. (F)’s Cologne offices as part of the team on models such as the Focus and Mondeo. He received a degree in transportation design from the Art Center College of Design in Pasadena, California.

In Shanghai, Saracoglu will lead a team of 30 to come up with new concepts for models from sedans to SUVs.

“Chery is not just QQ, we’re going to change that,” he said in a phone interview on Feb. 22. “The company is redefining itself. Chery’s standing for value, for design and gaining customer confidence. That’s where we want to go.”

Chery has a 50-50 joint venture to produce Tata Motors Ltd. (TTMT)’s Jaguar Land Rover in China. It also co-owns startup carmaker Qoros Auto Co. with Israel Corp.

Asked how much of a salary increase he was offered to leave Porsche, Saracoglu said, “I cannot comment on that. Let’s say I’m not unhappy.” 

Click here to read this article at bloomberg.com

Used Lamborghinis Linger on H.K. Lots Amid China Lull

Bloomberg Business Week, July 29, 2012

A model poses near luxury Lamborghini SpA sports cars during the Shanghai International Circuit Club Challenge, in Shanghai, China. Photographer: Qilai Shen/Bloomberg

Waiting lists for ultra-luxury cars in Hong Kong are getting shorter and used-car lots are cutting prices on Lamborghinis, Ferraris and Bentleys in the latest sign of China’s slowdown.

At first glance, the numbers are deceiving: Sales of very expensive new autos surged 47 percent in the first six months, according to industry analyst IHS Automotive. Look more deeply, however, and another picture emerges, especially in the city’s used-car lots.

Dealers of such second-hand cars say job cuts and the worsening global economic outlook are creating uncertainty among the finance-industry and expatriate professionals who make up the bulk of their buyers.Morgan Stanley (MS) (MS), Citigroup Inc. (C) (C) and Deutsche Bank AG are among firms with Asian headquarters in Hong Kong that are cutting jobs worldwide.

“The more expensive the car, the more dry the business,” said Tommy Siu at the Causeway Bay showroom of Vin’s Motors Co., the used-car dealership he founded two decades ago. Sales of ultra-luxury cars have halved in the past two or three months, he said. “A lot of bankers don’t want to spend too much money for a car now. At this moment, they don’t know if they’ll have a big bonus.”

Unlike Rolex watches, Gucci handbags and other luxury goods, Hong Kong’s car market hasn’t been distorted by the more than 28 million mainland Chinese who flocked to the city last year. Mainland shoppers spend 44 billion euros ($54 billion) on luxury goods while traveling overseas to locations such as Hong Kong and Europe, according to CLSA Asia-Pacific Markets.

‘True Look’

“In the car market, it’s not buying like watches,” said Booz & Co.’s Russo. “Here you are getting a true look at a category of product bought by Hong Kong buyers. It’s a pulse check on how Hong Kong residents view the stability of the financial system.”

The new-car figures look better because of some short-term developments. The release of the latest models from Ferrari and Lamborghini and the opening of the first Hong Kong showroom by McLaren -- maker of the 592-horsepower MP4-12C carbon-fiber coupe -- have given sales a bump. Meantime, depressed demand in Europe means a bigger allocation of new cars for Hong Kong dealers.

With the highest proportion of billionaires in the world, according to a Boston Consulting Group report released in May, Hong Kong has enough buyers unaffected by market conditions to keep new sales going, said Bill Russo, a Beijing-based senior adviser at Booz & Co.

‘Saying Something’

There were 273 new Bentleys, Lamborghinis, Rolls Royces, Ferraris, Aston Martins and McLarens sold in the six months to June 30, up from 186 in the first half of last year, according to Englewood, Colorado-based IHS. This outpaced the 23 percent gain in the U.S., the world’s richest nation, and the 40 percent jump in mainland China, the world’s biggest car market, IHS data show.

For these buyers, price isn’t an issue and settling for second-hand is not an option, Russo said.

“It’s the brand image and it says something about you,” said Russo, who was formerly Chrysler Group LLC’s China head. “Used-car buyers are more price sensitive and economic cycles will affect these shoppers more. They are paying for the cars with their income as opposed to their savings.”

The European debt crisis is slowing expansion in emerging markets including China, the International Monetary Fund said this month, when cutting its global economic growth forecast for next year to 3.9 percent from 4.1 percent.

Aspirational Buyers

Hong Kong’s economy eked out 0.4 percent growth in the first quarter, the slowest since escaping the recession caused by the 2008 global credit crisis. Average daily turnover on the city’s stock exchange, the world’s fourth biggest, was 22 percent lower in the first half than the corresponding period of 2011. Asia-Pacific takeovers have dropped 22 percent to $306 billion, according to data compiled by Bloomberg.

People shopping in the second-hand market are typically aspirational buyers who are more likely to sit it out rather than trade down when they can’t afford the brand they want.

“An uncertain economic outlook encourages consumers, particularly those without a buffer provided by sizeable financial assets, to pause on big-ticket purchases,” said Tom Rafferty, a London-based Economist Intelligence Unit analyst.

Vin’s Siu said the drop in high-end customers who typically account for 30 percent of turnover at his 300-lot business was the most important factor behind a 20 percent drop in total sales. Expatriates made up about 70 percent of customers, he said. “A lot of expats are leaving Hong Kong,” he said. “For every 10 who are leaving, two are coming.”

Mercedes Discount

To spur demand, dealers in pre-owned cars are slashing their prices -- together with how much they’re willing to pay sellers.

A yellow, 2011 Lamborghini Gallardo 550 recently listed for HK$2.88 million ($371,000) on second-hand car website 28car.com is about $830,000 cheaper than a new model -- chump change that would buy a new Mercedes E-Class Coupe to run the kids to school. A silver-gray 2011 Ferrari California with 980 kilometers (613 miles) on the clock is available for HK$2.68 million. That’s a 19 percent discount to a brand new 2012 vehicle, and HK$400,000 cheaper than a 2011 version sold by Ferrari’s official in-house used-car dealer.

“We started cutting prices at the beginning of the year to stimulate sales because the market was slow,” said Tony Chan, a director at GP Motors a short walk up the hill from Vin’s, adding that second-hand Ferraris and Bentleys are leaving the 30-lot dealership at half the speed of last year.

Someone looking to sell a 2009 Bentley Continental will have to accept HK$1.7 million, a third less than they would have received at the start of the year, Chan said.

In the basement automall beside Hong Kong’s Grand Hyatt hotel, trader Samuel Chui said he has stopped buying more cars.

“People want cash now, they don’t want the commodity,” said Chui, who reduced the number of car lots he rents from 15 to nine at the end of last year as business began to slow. “We’ve got plenty of stock and it’s not moving.”

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net