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The Shuanghuan S-RV, like the two other Chinese SUVs shown here, is priced between $9,500-and $12,000. The below $10,000 versions sell best.Chinese SUV makers smother the Cherokee
Chinese SUV Great Wall Safe
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SHANGHAI -- Beijing Jeep has been hit - and hurt - by competition that other global carmakers in China may soon confront: Intense, sustained, price-driven challenges from Chinese manufacturers.
"Competition in China has forced me to completely re-think twenty years of theory," said Dr. Michael Enright, a noted expert on competition, at a recent conference in Shanghai. "Chinese companies in a given industry can make no profits for five years in a row, then come back in the sixth for more of the same."
When Beijing Jeep launched the Cherokee 2500 in late 2002, there were high hopes of opening a new market segment for SUVs. The 2.5 liter, 4x2 Jeep was designed to attract young Chinese buyers for city cruising.
The price was set between $12,000 and $13,000 U.S. , an aggressive positioning designed to get buyers in the door. The plan worked. Sales of the 2500 reached 13,201 units in 2003, up from just 7,199 in 2002. Beijing Jeep in 2003 also earned profits for the first time since 1997.
But strong demand for affordable off-roaders soon drew the attention of three young Chinese pickup truck makers, based in Hebei Province, some 200 miles south of Beijing. The trio - Great Wall, Zhongxing and Shuanghuan - are state enterprise companies with degrees of private ownership. Great Wall at the end of 2003 listed some shares on overseas stock exchanges.
All three firms had already expanded their product line-up to include SUVs. But none was sure about volumes. T he early success of the Beijing Jeep 2500 gave evidence of demand, enough demand anyway to attract the Chinese makers.
Great Wall attacked first with the 4x2 Safe, a large SUV that looks like an older Land Cruiser. When the SAFE sticker price was revealed to be $9,800, executives at Beijing Jeep cringed. Within a few weeks, it was apparent that SAFE was stealing sales and market share. Zhongxing and Shuanghuan followed with their own offerings.
By the end of 2004, Cherokees sales limped to 10,801 units, down 25 percent from the year before. More importantly, profits also saw steep declines. Cherokee sales dropped to only 138 units in the first month of 2005.
Great Wall achieved sales of 27,000 Safes in 2004. Zhongxing and Shuanghuan also beat Cherokee totals. But Chinese SUV makers are suffering poor financial results too. Great Wall's stock price has dwindled from $22 a share in early 2004 to just $3 today.
Beijing Jeep's company's rough experience demonstrates the willingness among some Chinese firms to forego profits in exchange for more employment or increased market share. "It's like a lose-lose situation" is the way one dealer in Beijing put it to me. However bitter, these may the not-so-distant future terms for staying alive in China's auto industry.
Dunne is founder and president of Automotive Resources Asia Ltd., a market strategy and communications company that specializes in Asian automotive markets. He can be reached at michael.dunne@auto-resources-asia.com.
The Zhongxing Star
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The Detroit News.
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