Auto-sales-statistics-China-Baojun_510-SUV

GM’s big bet on cheap cars in China is paying off

Auto-sales-statistics-China-Baojun_510-SUVBuick has been GM’s volume brand in China for decades as it enjoyed huge popularity with the masses, its image boosted by the last emperor, who owned two of them. Buick still sells over a million cars a year in the People’s Republic, over 5 times as many as its sells at home in the United States, but its time as the best selling General Motors brand in China may soon be over. In November for the very first time ever, sales of GM’s low-cost Baojun brand, from its SGMW Joint Venture with Chinese auto giants SAIC and Wuling, outsold Buick as its sales jumped more than 40% to nearly 128.500 units. Buick sales were up 2,1% to just 

over 125.000 units. For the first 11 months of 2017, Baojun sales are up 33,7% to 881.000 compared to a drop of 1,2% in Buick sales, to nearly 1,1 million. What makes this performance even more impressive is that Baojun, which has a logo of a horse’s head as its name translates “treasure horse” from Chinese, was only introduced in 2010 and currently has just 6 models in its line-up, compared to 10 Buick nameplates. Baojun specializes in entry-level cars marketed to first-time car buyers in rural areas and small cities in China, mostly competing with other domestic brands. In China’s heartland, car sales have continued to rise by double digits even when sales growth in the tier-1 markets, the large coastal cities, has flattened. Its connection to General Motors gives it a huge image boost compared to its domestic rivals, and as a result Baojun reached a record #4 spot in the November 2017 brands ranking and #2 domestic brand behind Geely. It was the only brand to have 3 models in the November best selling models ranking.

Auto-sales-statistics-China-Baojun_560-SUVGM’s main rivals Volkswagen, PSA and Ford have failed to recognize that China’s growth would shift from the major cities to the vast hinterland with its millions of Chinese in so-called tier-three, -four and -five cities who had never owned a vehicle before or were used to driving cheap but noisy and uncomfortable rear-wheel drive microvans and minitrucks. The SAIC-GM-Wuling Joint Venture had been making such no-frills vans for these markets since 2002 and was one of the first to envision the potential for car sales once the middle-class in these parts of the country started to grow and launched a small and affordable sedan under the newly founded Baojun brand in 2010. Since 2014 the brand has added at least one new nameplate annually, starting with the 730 MPV, followed by the 560 crossover in 2015, the 310 hatchback in 2016 followed by the 310Wagon in 2017 as well as the 510 crossover and E100 EV.

After Baojun’s launch, only Dongfeng-Nissan with its Venucia brand followed in 2012 and even outsold its rival in 2012 and 2012, but it has been a lot less successful in recent years (2017 sales in the first 11 months are up 24,5% to nearly 124.000, less than Baojun’s November sales), as it initially mainly just sold retired Nissan models or platforms with few significant changes as “new” Venucia models and offered little in terms of content or features. In contrast, at just 36.800 yuan (€4.990,- / US$ 5,470), the Baojun 310 is equipped with a full-color 8-inch touchscreen on top of the center console. It also has trendy orange colored accents in the interior and alloy wheels to appeal to the younger crowd. Only recently Nissan and Dongfeng have realized the missed opportunity for Venucia and have promised to give it more focus to help it grow with new products and an improved content. Honda’s attempts at creating low-cost local brands with its Chinese partners GAC (Everus) and Dongfeng (Ciimo) failed miserably for the same reason as Venucia as well lack of new product as its partners were happy with just raking in the profits from booming sales of the Honda brand.

Baojun_310-China-car-sales

Volkswagen has been contemplating a low-cost domestic brand for years and is finally getting serious about it, but in the meantime GM is already selling a million Baojuns a year. The next step for the brand is to help General Motors to expand its electric car sales as the Chinese government is planning to launch a Auto-sales-statistics-China-Baojun_E100-EVCalifornia-style carbon credit trading scheme in 2019 which forces automakers to build (and sell) EVs and PHEVs in large quantities. In response, VW and Ford have formed new Joint Ventures with Chinese lower-tier EV makers (VW with JAC and Ford with Zotye) to build affordable EVs for the domestic market, as those partners can give them the access they need to tap China’s entry-level market. General Motors already has an established brand to reach those customers and even already has started sales of SGMW’s first all-electric city car, the Baojun E100. Sales in its launch city of Liuzhou, Guangxi (Baojun’s hometown) started in August and topped 1.915 in November before the model will be rolled out to other cities next year.

  1. Demand for cheap domestic cars is fuelled by the absence of a functioning used-car market. Consumers in lower tier cities with limited budgets can’t afford to by international brands new other than cheap sedans. Over time Chinese consumers will focus on high-quality cars once they better understand value retention and cost of ownership, and used cars become more available. Great Wall and Geely realise this, hence the effort to move upmarket with WEY and Lynk & Co. Unless Baojun also moves up over the next decade, it could be caught in a backwater.

    1. Hi Janet,
      thanks for that insight. I’m sure if Baojun, Geely and some of the other domestic brands get their quality levels up, the consumers will continue to buy them. Or do you think it’s an image thing, that they’ll still prefer the prestige of an international brand once they can afford it?

      1. I agree with you, they will continue to buy them. I mean,it is not like EU market is different. You can buy Passat or Superb new or used Audi. Some prefer to buy used Audi for the image other prefer to buy new. Same as Dacia and other normal brands. Not like people who are buying Duster can’t afford used VW Tiguan but they decided they want warranty. Others do just the opposite. I think those brands have future there, but they will be moving more upmarket year by year.

      2. Right now a used CR-V or Tiguan is not an option, so if your budget is less than Rmb100k, you have no choice but to buy a domestic brand SUV. I don’t think the domestic brands disappear – there will always be buyers who prefer new but lower quality to used, especially given the preference for new things in Asia – but I expect you will see a concentration of domestic OEMs. If nothing else the fuel economy targets of 5L/100km by 2020 will be tough for some domestic OEMs to achieve. Others like BAIC are already saying they will abandon ICE vehicles as they can’t compete. The sharp decline in demand for Hyundai, Kia, Peugeot and Citroen sedans highlights how quickly share can be lost in China. With over 70% of buyers being first-time car owners, understanding of drive quality etc is low. Repeat buyers gravitate heavily to international brands, and increasingly the high-end domestic brands like Trumpchi, Geely and Great Wall. Trumpchi doesn’t even sell cars below Rmb100k, highlighting that it understands where the market is headed longer term in my view.

      3. I see what you’re saying, Janet. But is the quality of the domestic brands really so much worse than that of the import brands or is this just the perception of the consumers? I mean, Buicks and Chevrolets are also built by SAIC, and so do Volkswagens. They even share some engines and other hardware. And I’m sure Geely gets help from Volvo on their quality processes. So it’s safe to say they do know how to produce quality vehicles.

        Aside from that, I totally agree with you that there will be a consolidation of domestic brands. In fact, FAW, Dongfeng and Changan have already formed a joint venture for future technology development, which could perhaps be a first step towards a merger. And these are among the largest ones, I don’t expect the small and medium-sized manufacturers that are only active on the local market to survive or stay independent for many years to come.

  2. There is huge variation among the domestic brands that first-time buyers don’t always appreciate. If you visit a Lifan or BYD assembly plant, there is limited automation, which leaves quality suspect. In contrast, Great Wall’s new plants in Xushui look like BMW clones, full of Kuka and ABB robots. Trumpchi’s plant is a copy of a Toyota plant, and Volvo has been involved in Geely’s newer plants (but early ones lacked automation). As more data comes out on cost of ownership and value retention, the differences should become even more apparent. With two-thirds of cars less than 5 years old, it is hard to tell.

    1. Thanks for this great insight!
      So I guess the future winners and losers of the Chinese auto industry are already in the making. The “losers” are just able to survive because the market has been growing so quickly and demand has been robust. Perhaps a small recession in domestic car sales is exactly what’s needed to cut off the excess capacity and reduce the number of brands to a few strong players, who will then have the strength and capabilities to make a move into mature international markets.

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