Market ripe for Chery's picking

But Chinese car maker's competitors are waiting and watching

As one of the best recognized home-grown brands in China, Chery Automobile Co is reaching out to conquer another emerging market-Africa. But Chery will have its work cut out, because European and Japanese car makers are guarding their territories jealously.

If you ask someone to name two Chinese brands, they will probably cite Chery and Geely. In 1997, Chery, based in Wuhu, Anhui province, was among the first Chinese enterprises to go into the automobile industry and gain a foothold in the budget car sector.

The company was also among the first to make a foray into overseas markets. It began exporting in 2002 and delivered its first vehicle to Africa in 2003.

Huang Huaqiong, spokesman and assistant general manager of Chery Automobile Co, says Africa is among the most important markets in Chery's strategic plans.

"The population on this continent is nearly 1 billion, and the economy is growing by 6 percent every year, higher than the global rate of 4 percent. Besides, car ownership has just begun in Africa, with sales accounting for 2.2 percent of the global figure. That leaves huge room for Chinese automakers to expand there," he says.

Chery is now the biggest home-grown vehicle brand in China by sales volume, as well as the biggest passenger car exporter. It was sales champion in China (among Chinese brands) for 11 consecutive years until it lost ground to Great Wall Motors last year.

For Chery, continuing shifts in China's domestic market have confirmed that its decision to look for opportunities overseas was the right one. For the past two years the Chinese auto market has slowed and foreign brands have continued to nibble away at Chinese brands' market share. Chinese automakers' market share dropped to an all-time low of 24 percent in mid-2012.

Last year Chery exported nearly 30,000 vehicles to Africa, an increase of 143 percent on the previous year. Almost all its major models were included: QQ, A3, E5 and Tiggo. Africa now accounts for 16 percent of Chery's annual exports.

The company set up an assembly plant in Egypt with a local enterprise in 2005, and operations with knocked-down vehicles in Senegal and Zimbabwe.

The China Association of Automobile Manufacturers says Chinese brands including Chery have evolved from insignificant car dealers to important local investors in this market.

"This transformation has also benefited a handful of spare-parts companies that quickly grew from scratch thanks to the development of Chinese companies in Africa," says Shi Jianhua, the association's deputy secretary-general.

Chery's biggest attraction is still its price, with most Chinese models selling at prices on a par with those for used cars from Japan and Europe. While the profit on a budget car averages about 3,000 yuan (368 euros; $480), a typical joint-venture model can reap above 10,000 yuan.

Chery's image as an inexpensive, low-quality car will not change overnight, says Dong Yang, the association's vice-chairman.

"But having a low price helps in grabbing a slice of the cake, since right now we cannot compete against our European and Japanese counterparts on brand and quality."

Dong says that while the cost of labor and material is rising, which puts great pressure on Chinese exporters, "it is still lower than in Western countries".

That price advantage will persist for another 10 years, he says.

But Chery, well aware of the downside of its image in Africa, is trying to reposition its cars. It started by customizing models for this particular market. As most places in Africa are dry, hot and windy, Chery has developed models with big wheels and larger petrol tanks.

"The market should not be a mere copy of the domestic market," Huang says. "It deserves special attention."

Although Chery's biggest selling points are good value and after-sales service, the car's future lies in quality and brand building, Huang says.

After 20 years of exports, most Chinese automakers have realized that money cannot buy brand influence or cutting-edge technology; companies have to put in a great deal of time and effort into doing that job themselves.

However, a new problem is that the destination markets are now setting much higher bars for Chinese companies, and neither Chery nor Great Wall can simply move cars on and off ships and watch them quickly sell out as they did 10 years ago.

More and more African governments now require Chinese exporters to bring new technology and new job opportunities to the country, over and above the products they sell.

"That means the Chinese companies should establish more local plants, rather than the existing trading companies only aiming to push their cars," Dong says.

Chery has set up 200 dealerships across Africa, Great Wall Motors about 700 dealerships and Lifan Group nearly 300.

"Chery will maintain its existing markets in Africa and expand production capacity when the opportunity ripens," Huang says. "Then we will radiate the brand influence to nearby countries.

"In many countries infrastructure has just started to be built, and emissions and safety standards are not really there, so there is still room for many Chinese vehicles; but we will have to survive by our brand name and quality."

But a problem for Chery is that Chinese companies' export destinations overlap heavily: mostly in Algeria, Chile and Russia. Last year, after Russia entered the World Trade Organization, it suddenly became a good hunting ground for Chinese automakers.

However, Dong Yang warns that Chinese automakers should not expand their operations too quickly, something could prove to be disastrous financially.

"Most companies die because they run out of cash, especially in a new market where they have little knowledge of the local laws and practices," he says.

As the number of Chinese-branded cars rose to 10 million last year, exports have been a hot topic of debate in the industry.

"With such a big volume, we have to count on overseas market to absorb the inventory," Dong says. "This will be a future direction for Chinese automakers."

Last year more than 1 million cars were exported, with an increasing number going to Africa, the China Association of Automobile Manufacturers says.

For Chery, the good news is that big exporters like it can expect stronger backing from the Chinese government. Fu Yingsheng, deputy director of the Department of Mechanical, Electronic and Hi-Tech Industry, Ministry of Commerce, says the department has invited experts to explain the laws and regulations in major destination countries to major auto exporters, and the initiative will carry on in the next few years.

Other support includes tax rebates and short-term export credit insurance.

"In 2013 Chery will keep growing its exports and explore potential markets in Africa," Huang says. "We aim to build the brand into the No 1 Chinese vehicle brand in Africa."

wangchao@chinadaily.com.cn