Analysis: Chinese own brand manufacturers' prospects for the future

Gasgoo.com (Shanghai) - Following nearly two years of declining sales, Chinese own brand manufacturers finally showed signs of recovery this September. According to statistics from the China Association of Automobile Manufacturers, own brands' combined market share totaled 30.27 percent this September, representing year-on-year growth of 3.15 percent. It continued to increase the following month, reaching 31.29 percent. Although this figure has not matched previous record highs, it is still noticeably higher than those posted in recent months.

Will the end of this year see domestic own brand manufacturers' sales fully recover? Gasgoo.com (Chinese) conducted a three-question survey on the topic earlier this month, collecting opinions from 991 industry experts and analysts.

In the first question on the survey, participants were asked what they believe the major factor behind own brands' sales rebound this autumn was. 48 percent of respondents said that rapidly declining sales of Japanese vehicles allowed own brands to increase their market share. By comparison, 31 percent of respondents answered that the key reason was that own brands were becoming more competitive. Nine percent answered that market conditions were becoming more favorable for own brands, while five percent maintained that there were errors in foreign manufacturers' sales policies.

Following the escalation of political tensions between China and Japan over the disputed Diaoyu Islands in August, sales of Japanese vehicles in the country fell sharply this autumn. Reports of Japanese vehicles being vandalized during protests were commonplace in several major cities, while demonstrations sprung up advocating the boycott of Japanese goods, including automobiles. According to statistics, sales of Japanese brand automobiles in October totaled 98,900 units, marking the first month their combined sales failed to exceed 100,000 units. The figure represented a year-on-year sales decline of nearly 60 percent. Furthermore, their market share slipped 4.6 percent from September to October, and 12.3 percent from October of last year. Their combined market share for the month totaled 7.6 percent, the first time their recorded market share fell below ten percent. Promotional activities were unable to prevent the sales declines.

While the Diaoyu Islands incident was bad news for Japanese automobile enterprises, it ironically proved to be very good news for their competitors. Worth mentioning is that own brands were not alone in reporting successful sales increases. German manufacturers saw their passenger automobile sales grow over 30 percent, while sales of US, Korean and French manufacturers also rose over 20 percent.

The increasing competitiveness of Chinese own brand manufacturers was also cited by many as a key factor behind their sales growth. China Passenger Car Association General Secretary Rao Da was among those advocating this viewpoint. In his words, own brands have made significant advances in independent research and development and accumulated important sales experience in recent years, which has allowed them to better compete with rival joint venture companies. He points out that own brands have invested over 20 billion yuan in just two years to further research and development work. A recent study done by J.D. Power and Associates showed that the quality gap between Chinese own brand models and their foreign brand counterparts has further decreased this year.

When asked if they believe own brand manufacturers will be able to maintain the trend of increasing sales in the following months, only 36 percent of participants responded positively. 17 percent of participants disagreed, while 47 percent answered that it was hard to predict.

There are two key factors that will decide if own brands are able to continue to succeed in the near future: market demand and their own competitiveness.

As far as the former factor is concerned, on the surface, market conditions seem favorable to own brand manufacturers. Demand in the Chinese automobile market is still very high. Furthermore, Japanese manufacturers' sales look unlikely to recover in the new few months, allowing own brands even more room to expand their market share.

At the same time, however, increasingly strict safety and environmental standards mean that all manufacturers will need to increase production costs to ensure their vehicles can be sold in the country. This factor is especially important to consider for own brand manufacturers, which tend to rely on selling low-cost, affordable vehicles.

Furthermore, whether looking at brand image, technology, quality or customer service, own brand enterprises continue to lag behind Sino-foreign joint ventures. Although own brands have made notable strides in recent years, there is still a significant gap that has to be cleared, which is why many find it hard to forecast how they will perform over the rest of the year.

In the final question of the survey, participants were asked whether or not the government should take measures to aid own brand manufacturers. As in previous surveys, the vast majority of participants, 76 percent in this case, agreed with the idea, while 13 percent were opposed and 11 percent remained undecided.

Despite the face that annual Chinese automobile sales are now nearing 20 million units, no own brand manufacturer has managed to sell one million units in a single year. Nor has any own brand demonstrated the ability to compete with multinational companies in overseas markets. If the current discrepancy in technology between own brand manufacturers and their foreign rivals continues to exist, China's dreams to become a leader in the global automobile industry may never become a reality.

When asked which policies the government should employ to support own brands, there are several differing opinions. Renowned Analyst Zhang Zhaojun believes that government policies aimed at improving manufacturers' aftermarket customer service abilities are more beneficial than directly aiding their R&D and production capabilities. According to Mr. Zhang, own brands' ability to deliver comprehensive sales service will provide them with a continuous source of income and supply employment chances for new talent wishing to enter the industry. However, there are still those who maintain that the government can best help own brands by purchasing their vehicles for official use, which would help improve their brand image and further encourage private consumers to purchase them.