Analysis: The role the government policies play in the domestic automobile industry

Gasgoo.com (Shanghai) - What exactly do Chinese manufacturers need to see increased interest in own brand vehicles? A revolutionary shift in consumer attitudes may be just what these companies are looking for. According to a recent Gasgoo.com (Chinese) survey, polling 1,848 automotive experts and analysts, most agree that the government would be the most effective force in altering consumer tendencies.

Chinese manufacturers have long hoped to see own brands be the choice of vehicle for government officials, but due to safety concerns and lacking brand image, they have failed to make much inroads towards that goal. Official and government vehicles are still very much in the domain of foreign joint ventures, with domestic manufacturers having no choice but to sit idly by and watch. This trend only now seems to be shifting, with recent government efforts to incorporate more Chinese vehicles into to their automobile fleets.

China Association of Automobile Manufacturers Deputy Secretary Zhu Yiping posted on his Weibo blog that the Ministry of Industry and Information Technology had held a summit on how to stimulate innovation among domestic automobile manufacturers in mid-November. One of the statements made at the summit seems to have struck at the very heart of the issue: "[I] recommend that [this process] starts from the top with government officials riding domestically manufactured own brand vehicles." This statement, at very least, shows that officials are aware of the effect a vehicle being used for government use would have on the industry.

However, it goes without saying that domestic attitudes towards Chinese-made vehicles will be hard to change. 90 percent of respondents to the Gasgoo.com survey believed that Chinese buyers have a tendency to pine over foreign brands while ignoring domestic ones, something which is peculiar to this market. Only one percent believed that buyers here would be inclined to buying domestic vehicles.

It is an undeniable fact that Chinese manufacturers have been constantly outpaced by their foreign rivals, with most relegated to the entry-level segment. Despite the introduction of new mid- to high-class models, domestic companies have had a hard time shaking the image that comes with staying in the entry-level market too long.

The consensus that foreign brands are naturally superior to domestic ones has been entrenched so deeply in the average Chinese buyer's mind that it is hard to see how domestic brands can continue to develop without external aid. The government looks ready to fulfill that role.

74 percent of respondents said that if the government took steps to add domestic vehicles to their automobile fleets it would have a clear, positive effect on the industry. Only 14 percent opposed this view. Disregarding the short-term financial effects of entering the lucrative government vehicle market, the long-term influence having its models selected for official use has on enhancing a manufacturer's brand image is undeniable. Having a government official driving around in the same car an ordinary citizen could purchase can do loads for a brand's prestige.

Due to various historical reasons, the cars that government officials tend to be differentiated by rank of office. Therefore, if high level officials were to start driving Chinese vehicles, it should resonate down through the ranks. If not outright restricted from driving foreign vehicles, lower ranked officials would at least be more inclined to select cars similar to those of their superiors. And, if own brand vehicles were adopted throughout the government, ordinary buyers would be much more receptive to them.

Furthermore, the effects may not all stop there. Being selected for government use means that manufacturers must go out of their way to ensure their models' safety and comfort levels are above average in order to guarantee reselection in the future. Therefore, being selected as a provider of government use vehicles would further encourage companies to invest more in product research and development.

That said, whether or not the government is really ready to step in and make a change remains to be seen. Despite the recent Weibo post, many in the industry are still very skeptical. Only 25 percent of respondents to the Gasgoo.com survey were optimistic, with the remainder either negative (24%) or undecided (51%).

There are several reasons why many in the industry fail to be moved by the recent news. According to the Government Procurement Act, passed in January 2003, official bodies were advised to purchase only Chinese goods and services, including automobiles. Though the legislation was more symbolic than anything else, it is still cited by supporters of domestic government cars.

Aside from this, the Central Government previously passed legislation that official bodies take actions to ensure that at least 50 percent of their automobile fleets were Chinese brands. Although several domestic models were selected for purchase, the actual number appearing in use was far lower than the 50 percent minimum recommended by the law. The legislation remains to date unenforced. Similar legislation mandating maximum engine sizes and prices for government vehicles has been passed as well, which would outlaw most foreign JV vehicles current in use.

It is not hard to understand why foreign brand cars are the government vehicles of choice. Through many years of cooperation, joint ventures have struck up favorable business terms with government agencies, which domestic manufacturers would be hard pressed to break through. Furthermore, some officials are as attached to foreign brands as ordinary customers are, and are unwilling to accept similar vehicles carrying a domestic logo.

These factors, alongside the lack of a detailed system to enforce purchase of domestic vehicles, mean that the recent statements may very well end up as inconsequential as the aforementioned pieces of legislation are. Hopefully this will not be the case, as many believe that the government holds the key in allowing own brands to develop. In the final question of the survey, 74 percent of respondents believe that the government must take the leading role in promoting own brand vehicle use. The government's ability to help foster local industry is very evident. Worth taking note of is that governments in other countries such as Japan, Russia, South Korea and Germany have taken similar methods in the past to help promote local brands.

With Chinese manufacturers constantly introducing new models and improving quality all around, it is only a matter of time before domestic biases finally erode. However, without the government's help, this process may take an extremely long time. If the government decides to play a more leading role, domestic manufacturers may finally be able to match, and perhaps best, their competition.