Chinese Automakers Begin Brand Journey

When BYD, a successful mobile phone battery manufacturer, bought over a bankrupt auto maker in 2003, industry observers questioned the wisdom of such a leftfield acquisition. Six year’s on, however, and BYD’s F3 sedan is the fourth-highest selling passenger car in China ,averaging over 17,000 sales a month so far in 2009,and the company is beginning to make an impact in oveseas markets, including the US.

The rapid growth of BYD reflects a general upward trend within the Chinese auto industry,and one that has so far been immune to the worst of the global downturn. Indeed,with the US auto sector in major decline and European and Japanese automakers also feeling the recessionary pinch, China has become one of the rare bright spots for the global auto industry.

According to figures from the China Association of Automobile Manufacturers (CAAM), 6.1 million vehicles in total in the first six months,a 17.6 per cent increase over the previous year. In contrast, US auto sales plunged 35 per cent in the first half to 4.8 million units. Chinese passenger car sales in May alone rose 42 per cent.

But while China appears to have both the consumer purchasing power and the political will to sustain a healthy car market at home and, increasingly, overseas, its domestic automakers still suffer from a very basic image problem: very few consumers know who they are, while even less have an understanding of what they stand for.

At present, there are over 40 Chinese automakers in the local market, further complicated by the myriad joint venture set-ups between local companies and their overseas counterparts. In an attempt to rise above this clutter, many of China’s domestic auto companies have recently been making tentative steps into developing a real branding strategy.

Currently, the major consumer motivation to buy a Chinese-branded car is low price. As such, consumers have little emotional loyalty to the brand and the likelihood to repurchase the same brand is similarly low,particularly if another brand can offer a more competitive price point.

However, this is starting to change, and local automakers are fast becoming more brand savvy,says Klaus Paur, regional director automotive, North Asia,at TNS China.“Chinese car manufacturers now understand the importance of brand value and brand image. Their objective is to get a fresh start when launching vehicles in the upper car segments.”

This decision to create a clearer brand statement also has a political element to it, says Terence Oliver,president and CEO of Interbrand Asia-Pacific, who points out that the Chinese Government is taking active steps to reduce the number of manufacturers, and in some cases, forcing mergers. “No-one wants to end up being a parts supplier, so local companies are suddenly very eager to create their own brands,”he says.

But while the rationale behind the brand building process is clear,putting this into place will be a major challenge. To begin with,local automakers are starting from an extremely low base.While home grown car manufacturers have achieved incredible results over a relatively short period of time in terms of volume sales and are seen as a good value for money purchase, typical consumer perceptions tend be negative, in particular when it comes to safety and reliability.

Coupled with this is the strong brand legacy possessed by their competitors. Imported models – Audi, BMW and Mercedes, for instance – come loaded with a heritage built over many years. The same is true, although to a lesser degree, for the JV partnerships,many of which have been in the Chinese argument is that given the choice between a domestic auto brand or foreign auto brand at the same price, local consumers will always favour the foreign option.

So how does a local automaker fast track its way into the market? The past few years have seen Chinese companies adopt a number of disparate strategies. One of the most intriguing has been to cut out the many years of brand building and simply acquire an already-successful overseas brand.

Recent industry talk, for example, has suggested that Geely is in the market for one,or both,of the GM-owned Saab and Volvo brands. Such a move would give Geely instant access to almost a century’s worth of hard-earned brand equity.

“Buying an established auto company and its brand is a fast and relatively cheap way to enter a difficult market,” says Oliver. “It remains to be seen, however,whether Chinese companies have the means and the know-how to make these brands successful where other, more experienced, companies have failed.”

Geely would be advised to note the experience of Nanjing Automobile Group (NAG), which acquired struggling UK auto brand MG Rover in 2005.The state-owned company set an ambitious target of manufacturing over 100,000 vehicles a year by 2010, but within three years the MG brand had gone nowhere and NAG was swallowed up by rival automaker, Shanghai Automotive Industry Corporation (SAIC).

“Chinese firms have the ability to purchase [overseas] car brands, but don’t have the management to market them,” says Kelvin Gin, director of Motoresearch at Synovate China. “The acquisition of MG was at the time hailed as an opportunity to move Chinese manufacturing to another level. However, NAG failed to move the brand forward.The company has since joined with SAIC and still the MG brand hasn’t made huge headway.”

When not buying overseas car brands,Chinese companies have had a tendency to be copying them. Most nortious in this respect is the Chery QQ car, which General Motors has long argued is a direct copy of the Matiz model from its South Korean subsidiary Daewoo. More recently, Geely has been accused of copying the design of the Rolls-Royce Phantom for its newly-launched high-end GE model, while Chery has come under renewed criticism, this time for the logo of its new Riich sub-brand,which bears more than a passing similarity to that of Bentley.

“At the end of the day, the copying strategy will be harmful for the Chinese manufacturers,” says Paur. “While their motivation to do so is quite obvious,namely to obtain immediate awareness,they are going to lose credibility very quickly. Even if they may succeed in terms of products ,they will remain in the shadow of the stronger brands. This is why it would be much better to establish a distinctive own identity.”

The launch of the Riich sub-brand highlights another potential problem for the Chinese auto sector — the indiscriminate adoption of a multibrand strategy. Already this year, Chery has launched three new brands, while Geely has introduced five. Critics have pointed out that this could dilute the original brand and confuse its positioning among Chinese consumers, especially given the speed with which the sub-brands have been brought to market.For comparison, it tookToyota over six years of research and preperation before launching its Lexus sub-brand. Such short-sightedness in terms of branding is compounded further by how poor the car companies are at supporting a brand once it is in the market.

According to Kenny Wong, cofounder and managing director at WE Marketing,which handles the Roewe and MG brands for SAIC, the mistake most local brands make is to treat the brand simply as another aspect of sales.

“They have to first answer the survival issue – cut the price and hit the sales target so the factory can reach its volume quotas,” he says. “What they are lacking is a consumer development strategy.”

Brands are still pushing out what Jimmy Liang,deputy managing director of Leo Burnett Beijing, calls “very fundamental” communications that prioritise building up sales volume,either for the export market or for China’s lower-tier cities,both of which still offer new opportunities for nofrills, low-cost vehicles.

But to create genuine, long-term consumer loyalty, automakers need to move beyond communicating the functional benefits of the brand and start creating an emotional payback. 

“In my opinion, everyone has to start looking at establishing differentiation in terms of brand equity and value,” says Liang, pointing out that  some progress is being made.“We are starting to see more and more brandbuilding advertisements.In the past,it was all about the model; now we have more investment behind the brand.” And while Chinese automakers are certainly way behind their foreign counterparts in terms of brand building and marketing, they do at least have the excuse of being extremely new to the game.

With little more than a decade’s worth of experience in a genuine market environment, these manufactuers are still at the beginning of what could turn out to be a long journey to make ground on their global rivals.

“To catch up,[Chinese brands] need to look at clearly segmenting the market and understanding consumers,” says Synovate’s Gin. “It will take time but the Chinese brands do seem to be catching up faster than most ever anticipated and it won’t be too long before we see their vehicles being compared against some the more mainstream global brands.”