Chinese Carmakers Look to Huawei Effect to Boost Consumer Drive
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2017-08-31 15:32:36

SHANGHAI — It’s late on Thursday afternoon, and only a dozen or so customers are milling about at a Great Wall Motors dealership in the north of Shanghai.

Among them is the recently married Yang Jian. Just off work and dressed in a black business suit, the 28-year-old first-time buyer has his eye on a Haval H6, a sport utility vehicle with a 1.5-liter engine that costs around 135,000 yuan ($20,000). “The price is good and the quality is sufficient for daily commuting or short-distance trips,” he told Sixth Tone.

GWM is China’s top SUV brand. Based in northern China’s Hebei province, the company was recently thrust into the international spotlight following reports that it was considering buying iconic American auto brand Jeep.

While such talk has cooled — Jeep’s owner, Fiat Chrysler Automobiles, said it had not been approached by GWM — auto industry commentators and some consumers are asking when a Chinese car company will emerge on the global scale, and what such a debut would mean for Chinese carmakers.

As for the timeline, automotive consulting firm J.D. Power and Associates expects to see one, if not two, Chinese car companies transition from domestic players who export small numbers of cars to minor markets, to true international brands — think Germany’s Volkswagen, Japan’s Toyota Motor, or the United States’ General Motors — within two years. J.D. Power predicts that 2019 will be a “milestone year” for Chinese carmakers.

Successfully cracking global markets should bring operational benefits such as improved economies of scale, the consulting firm said. It could also deliver other, less tangible benefits such as increased national pride or even a higher public opinion of the brand back home in China.

Call it the “Huawei effect.” Mei Songlin, J.D. Power China’s vice president and managing director, said the Shenzhen-based telecom giant offers a good example. “If automakers can show themselves to be competitive as global brands, they will see improved brand perception in the Chinese market, too,” he told Sixth Tone.

Because Huawei has proven itself in the global market, today, both individual consumers and corporate buyers are choosing Huawei smartphones, Mei said — and he expects the same thing to happen in the car market.

“If Chinese brands can prove their success in the American or European market,” Mei said, “then not only entry-level customers, but also some middle and premium customers will buy them, too.”

Already, the young generation is not burdened by the poor image of Chinese brands that persisted, say, a decade ago, Mei explained. “Their perception of Chinese brands is positive,” he said.

In addition, over the past five years an almost entirely new market for cars has emerged in smaller cities and towns in the less-developed parts of China. Customers in these areas understand that international brands tend to be of slightly higher quality, but not enough to justify their higher sticker prices. So in the end, they opt for cheaper but good-quality domestic brands, he said.

China is the world’s largest market for new passenger cars: 24.4 million were sold last year, according to the China Association of Automobile Manufacturers. In July, around 1.7 million passenger cars were sold, a year-on-year increase of 4.3 percent. Sales of SUVs, meanwhile, saw an even bigger bump at 17 percent.

Wang Huixia, another customer at the GWM dealership in Shanghai, wanted to buy a an electric version of the C30 sedan, which costs around 70,000 yuan once various incentives and allowances have been factored in. “The price is good,” she told Sixth Tone, “and my colleagues tell me this brand has a good reputation.”

Underlying such views has been a significant improvement in the quality of Chinese brands compared with foreign brands. Based on J.D. Power data, the gap in the number of problems recorded by domestic brands versus international brands in the Chinese market is narrowing. As early as next year, Chinese carmakers could catch up to their foreign counterparts, data from the consultancy suggests.

In the future, the distinction between Chinese and foreign brands will disappear, Mei said. Instead, consumers in China — as is the case in other developed markets — will self-stratify toward entry-level, mid-level, or luxury brands.

While some brands such as Geely have made some progress in their bids to go abroad — the Chinese carmaker now owns the Swedish brand Volvo — for many, it won’t be easy to make it in a big way. To succeed, Chinese cars must meet the quality demands of developed markets and raise brand awareness among consumers in the U.S. and Europe — places where the “Made in China” tag still conjures up images of low cost and low quality.

Commenting on GWM’s rumored international plans on the popular Chinese car website Autohome, one user summed up the evolution of the country’s auto industry. “China’s domestic brands have developed a lot,” the user wrote. “Ten years ago, no one would have believed an [overseas] acquisition was possible. But now, it’s no longer a joke.”

Additional reporting: Yu Dingzhang; editor: David Paulk.

(Header image: An employee drives a Haval SUV off the production line at a Great Wall Motors factory in Tianjin, Feb. 8, 2017. Fei Chenglong/VCG)