This is the second post of a two part series. You may read the first post on China’s auto exports here.
The stand out exporter, fourth overall, Great Wall, has what some consider the most up-market of Chinese brands. Great Wall has concentrated on quality ahead of quantity for its exports hoping to build a brand overseas that will provide a base for longevity rather than a short term buck. Many of its models sell at prices closer to Japanese and Western rivals as opposed to Chery (whose cars fetch only half the price). Like Chery, which has started construction of a factory in Brazil, Great Wall increasingly produces cars overseas for foreign markets. This strategy comes from American firms in Europe and the Japanese in the US.
Unsurprisingly, Brazil serves as an early destination. Sales of Chinese-made cars have slumped in Brazil this year falling 30% as the government raised taxes on imports to protect the struggling local car industry. Chinese firms had enjoyed a distinct advantage one article explains saying while a Volkswagen Polo costs about R$50,000 (US$23,900) in Brazil, similar Chinese-made cars cost half that. They served as a popular choice for first-time owners who pay in as many as 84 monthly installments. As a result, sales of Chinese-made cars in Brazil had exploded from only 143 in 2007 to more than 69,000 last year, before falling back due to the import taxes.
Increasingly China’s car makers will seek to set up manufacturing operations overseas to overcome local barriers and try to expand market share. This potentially presents a threat to western and Asian rivals. But to date, the poor quality has only served to firmly position most Chinese brands at the bottom of the market with success based purely on price. In the years ahead, the Chinese will struggle to lift their image out of this position. Korean manufacturers suffered a little from this in the 90’s and spent much of the next decade having to pioneer five and seven year guarantees to persuade buyers their cars could compete on quality. The Koreans have succeeded but the Chinese still have that mountain to climb. For now, in markets like Iraq and Algeria a quality brand image may not play as crucial a role as price. That strategy won’t likely work over the longer term and it definitely won’t work for US and European markets. A reprieve from the Chinese? For now…