Great Wall launched in Australia in June 2009 and was successful for a while in the utility and SUV segments. Well over 40,000 vehicles were sold across five years at a running rate approaching 12,000 per annum in 2012. Others brands such as Chery, Geely, Foton and MG have followed, but with nothing like the passing success of Great Wall.
When Chinese car makers came to the Australian market it was thought they would follow the path of the Japanese and Koreans before them, except that the Chinese would build on their hard earned experience and be more successful sooner. But that was not to be – as yet.
Why manufacturers from the world’s largest car market are yet to forge any enduring success exporting vehicles to the west is interesting – especially if you are being offered or are seeking a Chinese car franchise.
China’s domestic vehicle industry is truly massive, accounting for well over 20 million passenger car sales in 2015. All the major global manufacturers operate there in government-mandated joint ventures with local partners.
There is a plethora of independent manufacturers too, of a scale and variety reminiscent of a post WWI United States. China currently has some 90 automotive brands, three times that of the US.
The Chinese car industry’s rate of expansion has been extraordinarily rapid and is likely unsustainable without significant rationalisation and change of focus.
The mass industrialisation of China’s economy has seen enormous upheaval for their people as rural populations are urbanised to support new industries. Many of them live in built-to-plan cities constructed by the government. A burgeoning and newly well-off middle class long ago started trading their bicycles for cars.
First time car buyers spent their money based on price and fashion rather that quality or safety – after all, even the most basic little buzz bucket looks pretty good parked next to a rickety old bike.
Many of these buyers are now trading up to their second or third cars, and their tastes are more refined. Both factors have and will continue to have a significant impact on the success or otherwise of Chinese car exports.
Facts of life
A fact of life for the next few years at least is that Chinese domestic demand will continue to shape the development of Chinese made cars. This means ongoing focus on left-hand-drive programs, vehicles with engines of or under 1.6 litres to qualify for government tax concessions and the slower than optimal development of safety features that are considered mandatory in western markets.
Those who can afford to buy foreign brand cars in China largely do so, and the success of many genuinely premium European manufacturers in that country stands testament to that. Chinese brands sell to the Chinese on price and mass market appeal.
Small cars in particular come in and out of fashion very quickly – selling massively then not at all – creating volatility that has left more than one manufacturer confused about the reasons for their success or lack of it.
The quality and refinement of Chinese cars will improve when their domestic market demands it and not before. Chinese car makers will only get serious about exports, particularly right hand drive exports, when their domestic market conditions force them into it. It has been a while coming but the push for both has begun.
China is a big and difficult beast to understand, and with a growing capitalist economy largely thriving under a still harsh, totalitarian Communist regime it is not hard to see why. government control and manipulation of capital markets is rife. Its tentacles extend into many ostensibly private corporations and its citizens’ daily lives. Indeed, the ramifications of the recently-repealed One Child Policy will be felt by their economy for generations to come.
The Chinese economy is slowing, at least by the lofty standards seen in recent years.
Concerns for the car industry include less volume and increased competition against a backdrop of too many brands with an extraordinary manufacturing overcapacity.
A long expected government push for car industry rationalisation will ultimately cull the brands, while an increased focus on exports is a logical way of utilising idle factories.
In some ways the Chinese car industry is becoming a victim of its own success. Booming sales for the last decade or so has led to a traffic jam of monumental proportions. Their car market may not yet have reached saturation but the road infrastructure of several major Chinese cities certainly has. Beijing, Guangzhou and Shanghai have all reached 250 cars per kilometre of road and introduced restrictions on new vehicle registrations.
The Chinese build quickly with new cities and roads appearing all the time, but the die is cast – as the car market matures exports will be increasingly necessary to underpin growth. This begs the question, what will happen when the Chinese finally get serious about exporting cars to the west?
With Great Wall the only Chinese manufacturer able to claim any significant success in a western market, they serve as a good case study on which to try and judge the prospects of future export efforts.
The Great Wall Motor Company was founded in 1976 and became the first publicly owned Chinese automotive manufacturer when it listed on the Hong Kong Stock Exchange in 2003. They initially specialised in manufacturing utilities and SUVs but has since diversified into a modest range of passenger cars.
Great Wall funded rapid expansion from capital raising and a profitable domestic lead in the utility and SUV segments. Its initial forays into passenger cars enjoyed more limited success.
The company has since pursued further diversification in terms of branding. Originally launched as an SUV model in the early 2000s, Haval (rhymes with gravel) is now marketed as a stand-alone premium brand by GWM.
The company’s Australian foray was handled by Ateco Automotive, the independent importer whose brains trust had overseen the successful introduction of Kia to Australia.
Their approach with Great Wall was a no frills launch with just two twin cab utes in the model line-up and 44 dealers in a slightly thin network – and it worked. The utes were followed five months later by a well-equipped SUV which, if somewhat sluggish in terms of on-road performance, simply blew the opposition away on price.
Fast forward a few years to 2012 and there were nearly a hundred Great Wall dealers in a genuinely national network and a thousand sales a month. The timing was right, the cars were good enough and the prices were sharp. The pace of growth certainly gained attention.
The reasons for Great Wall’s fall from grace in Australia are still largely shrouded in a dispute between Great Wall and Ateco, but there are some conclusions that can be drawn.
Dealers tell of promised new models that continually failed to materialise. Then the discovery of asbestos in engine and exhaust gaskets led to the recall of 23,000 vehicles in Australia in 2012, and generated wider concerns over compliance and safety with Chinese vehicles.
At about the same time a flagging Australia/US dollar exchange rate fuelled price pressure on Chinese imports just as Japanese government devaluation of the yen allowed its main competitors – such as Mitsubishi with its Triton ute and ASX SUV – to close the price gap from the other end.
Industry scuttlebutt on the reasons for the Great Wall/Ateco fallout suggests that Great Wall were not comfortable with being marketed as “cheap and cheerful” and felt that selling largely on price alone was damaging their brand. This despite the fact that selling on price is the way all market entrants from previously unknown countries in terms of car manufacturing, such as Japan and Korea, made their ultimately successful starts in Australia.
The company’s subsequent behaviour in regard to the launch of its Haval brand lends credence to those rumours. An “instant premium brand” that no-one has ever heard of smacks of incredible arrogance and a complete misunderstanding of the local market. This approach puts Great Wall at serious risk of becoming a laughing stock.
It has been suggested that Haval is to Great Wall as Lexus is to Toyota. Really? Toyota is one of the most consistently successful global car companies ever, and has spent 30 years building Lexus into something that can credibly claim to be a premium brand. Haval’s overpriced Australian line-up includes the H8, a vehicle that was ignominiously withdrawn from sale prior to its much vaunted launch in China and then held in limbo for 18 months while a raft of serious re-engineering occurred. Draw your own conclusions.
Great Wall’s change of tack in regard to export branding went further than just Australia.
The sudden great leap backwards from the Great Wall brand left distributors hanging out to dry as far afield as Europe, the UK, Russia and South Africa.
Whatever the reasons for their falling out, Great Wall and Ateco are widely reported to be bogged down in an ongoing arbitration process expected to be resolved one way or another by May this year.
Learn from the others
The history of other Chinese automotive export attempts to Australia is patchy at best.
A few sensibly managed efforts have come to grief for a variety of reasons including poor product quality, limited model range, lack of sufficient dealer network, conflict with existing brands and unrealistic pricing. This despite being run by well-known and otherwise successful motor industry identities and large, well-funded companies.
Then there are the boundary riders. Those trumpeting a model line-up of one, possibly non ADR compliant vehicle, no real history in the industry successful or otherwise, no network, no infrastructure, no capital and not a clue. There is an apparently endless series of these madcap gambits pursued with an almost psychotic intensity that will continue to bring financial ruin to investors great and small.
The lesson here is that even those proven to know what they are doing can and will be caught out by the Chinese car industry until its products and practices develop closer to that with which we are familiar. Those dealing with Chinese car companies encounter more than just a language barrier, they are culturally very different too. That was a diplomatic way of conveying that you would be well advised to check your rings and wristwatch after you have shaken their hands.
Future in Australia
Chinese cars will genuinely make it to Australia, their success is inevitable over time. Those who doubt this have either forgotten or never knew just how desperate things were for Japanese and Korean car brands here in their early days.
The cars are already much improved and the push for exports will quicken the pace of development, possibly in the next few years. In the meantime there is still scope for good business if the fundamentals are in place.
Well priced, reasonable quality vehicles from a decent range distributed via a national network with sensible marketing support will sell. Great Wall proved this. Dealers may have to work harder with some brands than others, but those who make an effort will sell cars.
There is room for optimism. Macro factors are pushing the Chinese auto industry towards better quality and a greater focus on exports. Some of their best companies have yet to even have a serious attempt at exports and right hand drive.
Promising signs are there even today. Foton sustains a reasonable toehold in Australia after an ambiguous start, and SAIC, a genuine big boy of China’s car industry, is steadily gaining traction here with its LDV brand.
Perhaps there lies a pointer. People seem more willing to take a punt on an unknown brand when buying a commercial rather than a passenger vehicle. It is likely that the next Chinese brand to take off in Australia will build its reputation with commercial sales and then migrate its focus to passenger cars.
With the fundamentals in place, all it will take is a good small or medium car with a killer price, and a manufacturer with the wit to recognise and exploit their success.
By Bill Durant