Yuan Zhijun: Pushing forward the Baojun brand

Gasgoo.com (Shanghai) - At the end of August, Shanghai-GM-Wuling's new own brand car, the Baojun 630, is about to complete its across-China tour in Jiangsu's capital of Nanjing. Serving as the second-to-last stop, Nanjing follows tours in Jiangsu, Zhejiang and Anhui provinces, which were important proving grounds for the 630. At Nanjing, Shanghai-GM-Wuling CEO Yuan Zhijun accepted an exclusive interview from Gasgoo.com (Chinese), where he accepted the hardships his company would face in competing in the rapidly maturing Chinese automobile market.

Gasgoo.com: As the undisputed leading company for compact automobiles and having already broken the one million sales mark, we are anxious to know what sort of mindset Shanghai-GM-Wuling's high-level staff has towards creating a new compact car brand. Have you felt like your company is already very successful, and that building a new brand is just a nuisance to get through?

Yuan Zhijun: The key to succeeding in the compact car market is to promptly understand changes in market demand and to progressively improve one's adaptability to [those] changes. Shanghai-GM-Wuling, being a 'Chinese-Chinese-foreign' joint venture, has constantly been strengthening cooperating between its three parties… On the other hand, with the strengthening of [our] ability, we will not miss any upcoming opportunities in the market. In 2008 an2009 our enterprise could already be considered an industry leader, but at that time [our top staff] did not believe that we were developing that well. In truth, there were a lot of aspects in which we were only doing so-so. Our company was not content with being a domestic leader, but [wanted to] become competitive internationally. Furthermore, [our goal] was not just to become successfully domestically in terms of end-user sales, but to pioneer in technological R&D, managerial skill and other domains. Therefore, our current performance is not good enough for us to be arrogant.

Furthermore, we believe that the recent explosion in the market over the past two years has [been too unstable]. From the viewpoint of a company, we aim to look for a reasonable market environment, such as this year's market. We believe that markets always have highs and lows. Under the guidance of government policies, [we believe] that as a strong market helps satisfy our company's demands, it is important to keep other aspects, such as strong management, in mind. We can't just look at immediate profits and losses.

Gasgoo.com: Prior to and even after the market entry of the Baojun 630, there are still voices of doubt that haven't been completely silenced, for example regarding product placement and production channels. It seems hard to convince everyone to believe that the Baojun will be successful. As a high-level executive, can you let us better understand the company's viewpoint and where the greatest advantages and disadvantages lie in development of the Baojun?

Mr. Yuan: (laughs) There may not be enough time to talk about it. When speaking about advantages, via research and understanding of the market we developed this car. [Therefore] in respect to this segment we have a very through understanding, which is demonstrated in this product's appearance, quality and functions. [There are all made by] considering what is convenient for the consumer and so on. Of course, there is a great amount of support from our shareholders. In the technological aspect, while GM gives us a lot of support, the cooperation [between] Pan-Asian accompanies is closer.

Work on our Aveo car started in 2003, when it still wore the Chevrolet badge. During these years we have been constantly absorbing and learning consumer [habits]. It can be said that Shanghai-GM-Wuling has always been paying attention to sedans, it's only that, at that time, we did not yet have the ability and strength to expand in this business. Then, in 2008, we were already large enough for the small car business–in terms of staff, capital, and every other aspect we possessed the ability to develop new products. The Baojun 630 was born under this background. It's our very own small car product

Gasgoo.com: What was the most serious problem that you had to resolve during the early stages of the Baojun?

Mr. Yuan: First of all, the Baojun is a brand new product, so consumers still need a definite amount of time to acknowledge the brand. Secondly, during early-phase promotion, there could not be a single slip-up with the Baojun 630's quality and other aftermarket service guarantees. Third is the establishment of the sales network. This is similar to the difficulties others faced when entering the compact car industry. Due to the fact that this model (a sedan) is different from other compacts, we had to distinguish from other sales networks and open up an independent dealership body.

Gasgoo.com: When looking at some statistics, it was said that 60 percent of the Baojun's dealers are transferred from Wuling. Are there any fear that, due to different consumer targets and varying vehicle characteristics, the practices and theories Wuling dealers apply may hinder marketing and promotion of the Baojun?

Mr. Yuan: We are not discounting this possibility, as [going through the Wuling dealer] is also a process. However, we have considered this question in the past, so when recruiting talent we thought about how to train sales and managerial staff. Of course, Wuling's dealerships have also accumulated experience in compact car sales. As I just mentioned, we began selling the Aveo in 2003, which had completely different consumers than Wuling's products. The years with the Aveo helped us, as well as the dealers, gather a lot of experience. At the beginning the Aveo was sold alongside Wuling vehicles at Wuling dealers, later we decided it was best to separate [the two brands]. In the end, we placed the Aveo in Wuling's sales channels, so today there are many Wuling dealers who also specialize in selling the Aveo. Therefore, we can't say that they (the dealers) have no experience in this field.

Gasgoo.com: There have been reporters who have gone to Baojun's 4S dealers to investigate. When asking for information regarding the Baojun 630, aside from a simple explanation that the car was a Wuling own brand vehicle and providing some simple figures, the sales staff had nothing else to say. This would make it hard for consumers to form trust in this product they've never seen before, much less want to buy it.

Mr. Yuan: Correct, this is something we are stressing in our continuing training.

Gasgoo.com: The Baojun brand is using the 630 model to enter the entry level subcompact market. However, when looking at the development of other brands, it seems for the best way for a brand to maintain its growth and stability in the market, it must start going after middle- and high-end segments. What sort of long-term plans do you have for the Baojun brand, and will readjustments be made following its maturity? Do you worry that by spending a long amount of time developing in the low-end market, that you will end up following the road taken by Chery, Geely and other own brands?

Mr. Yuan: We have not yet considered this question in detail. When we started developing this car, prior to creating the brand, it was set in the middle to upper levels of the entry level market. The Baojun brand is also essentially set in this range. As of yet, we have not begun considering the brand's position in the future. Right now our focus is to work hard to allow consumers to accept this new car and ensure its stability in the market, as well as erect our brand.

Gasgoo.com: By looking at the Baojun brand's placement, Baojun's goal market lies in second- and third-tier cities. Regardless of looking at growth in the average incomes for citizens in those cities or their overall markets, second- and third-tier cities already have a great deal of potential consuming power. On that note, both own brands and foreign joint ventures, even luxury manufacturers, will be striving to compete in those markets. For example, there are already many manufacturers with their eyes set on Nanjing. Do you feel this pressure at all?

Mr. Yuan: There is of course pressure. Right now, there are new automobiles coming to the market every month. Despite the large drop in the market this year, the amount of new models coming from companies all over has not halted. Everyone is looking to compete.

Gasgoo.com: So then what is the plan for the Baojun brand for the next two to three years? Are you able to reveal any information regarding upcoming products?

Mr. Yuan: The plan is to have a new model each year. This will be done in accordance to the company's ability, if I say that there are to be five or six models every year, but the company doesn't have this ability, then there's no point [for me saying it].

Gasgoo.com: Previously it was said that the Baojun would be exported in knockdown form. On this notion, in the next five years, Shanghai-GM-Wuling would be gaining a large amount of technological fees due to intellectual property rights from exports. Is there any possibility of this gesture becoming a reality?

Mr. Yuan: There is no such plan currently. [We must] first erect our brand in China. Only if we can do well in China can we start talking about overseas.

Gasgoo.com: Let's make a sales goal and market plan for the Baojun. What number of cars could we estimate the breaking even point for profits and losses to be at? Is there any rough number that could be given for a sales target next year?

Mr. Yuan: These figures are all scaled… for an average company that point is somewhere between 50,000 and 100,000 vehicles. The profit for entry level cars is relatively small, that should be somewhere around 100,000, [while] mid- to high-end vehicles is approximately at 50,000, more or less. This are specific points for this industry.

Sales are not the key thing we are pursuing. More important is the establishment of the product and brand. When these are both done well can we start considering sales. For example, when starting an eight year program, real economic gains may only start materializing three to four years later.

Gasgoo.com: There is much fervent discussion regarding technology in the market. On one hand, there is the debate that foreign players keep technology safely out of the hands of their Chinese counterparts. On the other hand, there are those who believe that the Chinese parties in joint ventures don't attempt to absorb or study new technology very well. From the perspective of a company, has Shanghai-GM-Wuling considering learning from platform technology acquired from GM in order to build the foundations to independent R&D in the future?

Mr. Yuan: This topic has been discussed for a long time, [but] in actuality we, as an enterprise, don't see the situation as that complicated. As a company, our goal is to fulfill our social obligations, while healthily developing. An enterprise is an organization whose prime goal is profit… Several outsiders like to use enterprises' actions to determine [the condition of the market], but since when are enterprises thinking that much? Enterprises are purely in the market to satisfy demands and to make the appropriate adjustments and responses to them. When looking at platform technology, when a company does not posses the ability to develop these on its own, it will find the most convenient and cost-effective way to [acquire this technology]. During this process, internal staff will naturally learn about and begin working on [this technology]. 

Gasgoo.com: However, an independent enterprise who does not have its own independent R&D capability, or is unable to successfully attract foreign technology, will not only undertake massive financial burdens in regards to technology transfer fees, but will also face several hindrances from foreign parties.

Mr. Yuan: This is relatively hard to responds to. Every enterprise is different–the most important thing to see is the demand each enterprise needs for its establishment. For example, there are some joint ventures where they have this R&D capability, as well as the staff support necessary. In this way they can depend on themselves to successfully satisfy market demands. However, there are definitely other enterprises that, while wanting to satisfy these same demands, face difficulties due to communication problems between Chinese and foreign parties. The key to this is resolving friction between [Chinese] enterprises and foreign parties regarding technology, so that they can have a common direction to work towards.