Analysis: Trends towards the reduction of the number of Chinese automobile brands

Gasgoo.com (Shanghai) - The domestic automobile industry in China is still broadly spread out, with over 150 manufacturers active and possessing their own brands. Repeated attempts to streamline it have not been successful. Not only is the overall number of automobile brands still too high, several manufacturers still persist in introducing new ones. FAW Group's Oley brand, which was announced last year, is one of the latest examples. Prior to its release, FAW already sold vehicles via the Besturn and Hongqi brands, in addition to those sold under its own label. Following poor sales, the Oley brand, which was originally aimed at younger buyers, has now been pushed to the brink of being phased out. FAW is not alone in its decision, with Chery having also announced to discontinue operation of its multiple brands.

Gasgoo.com (Chinese) recently conducted a week-long survey on the issue, collecting opinions from 1,020 participants from all across the industry.

The survey's first question specifically dealt with the failure of the Oley brand. The majority of participants, 54 percent, blame the brand's failure on poor managerial decisions, while 31 percent of respondents point to fierce competition in the market. Five percent of respondents believe the government had to do with its failure. By comparison, only four percent maintain that the Oley brand's current difficulties are only temporary.

The first mistake made was when FAW, which had no experience in developing a brand aimed at younger consumers, priced the Oley at between 60,000 yuan to 90,000 yuan. This price range relegated the Oley to the fringe of the extremely competitive compact market, with the manufacturer blamed for not adequately researching and understanding the brand's target audience. Eventually FAW dealerships were forced to introduce price cuts, slashing nearly 20,000 yuan off of retail prices in order to move Oley vehicles.

Poor judgment on part of FAW's management also prevented the brand's fortunes from turning around. Despite falling sales, FAW has not released a clear plan on how to save the Oley brand, which is not surprising, as the manufacturer had quite a number of problems to deal with. Statistics reveal that FAW is the only of China's 'Big Four' manufacturers to have experienced negative sales growth for its own brand passenger automobiles in 2012.

FAW still has plans to release new models in the Oley line, including a new hatchback. The Oley brand was originally intended to include a full product lineup, and it doesn't seem FAW is ready to give up on that dream.

What sort of influence Oley's failure will have on the future brand strategies of other domestic manufacturers is also a major topic for debate, and the second question of the survey. While the majority of participants, 60 percent, remarked that it is difficult to see what effects will come from Oley's letdown, one-fourth of respondents believe that it will dissuade other own brand manufacturers from undertaking similar branding strategies in the near future. Only 15 percent of respondents disagreed, saying that the drive towards establishing new brands will continue undeterred.

A good number of new brands released by domestic manufacturers over the last few years, if not being completely phased out, have failed to pull in significant sales. Most manufacturers which have implemented multiple brand strategies have reported poor sales results. Several of these manufacturers were under the false impression that by creating a new brand they would be able to stimulate new demand from new groups of consumers.

Furthermore, it has also been pointed out by several analysts that it is important for manufacturers in relatively early stages of development, which includes own brands in China, to concentrate their limited resources on improving the quality of their current products, rather than spending those resources to develop new brands. Chery is one of the manufacturers that took this advice to heart, halting the development plans for its Rely and Riich brands last year. In May of the same year, Rival Geely also began taking measures to streamline its business by halting operations at the sales departments for its Emgrand, Gleagle and Englon brands. The manufacturer reorganized those departments to oversee sales work in each of the country's different regions.

The comparison is often brought up between multinational enterprises which have established several subsidiary brands, such as General Motors, and Chinese own brand manufacturers. What separates those companies from domestic manufacturers is that they have decades of experience in the business, considerably greater share of the global market, larger amounts of capital, more experienced managerial teams and more developed sales networks. As such, they are able to establish subsidiary brands, which may not always be successful, but have a much better chance to thrive in the competitive market. For most Chinese manufacturers, however, embarking on a multi-brand strategy is risky and may ultimately end up hindering their other operations.

With the majority of industry analysts not especially optimistic in the prospect of a multitude of domestic automobile brands in the Chinese market, the question then is how many domestic brands do they predict will still be active in the country? The final question of the survey asked just that, with the overwhelming majority of survey participants, 89 percent, forecasting less than ten Chinese brands still in operation in the near future, with almost half of those anticipating that number to be less than five. Just only percent anticipate over ten brands to still be active, while the remaining ten percent were undecided.

Looking at the history of developed automobile markets, it becomes clear that the reduction of manufacturers and brands is inevitable. In the two decades following 1920, the number of manufacturers in Europe fell by 80 percent, while the number in North America decreased by 50 percent.

China, on the other hand, possesses over 150 registered automobile manufacturers, which has led to both resources and capital being spread thin to cover the entire industry. As a result, the industry's advances in developing and improving upon core technology have been severely limited.

The number of manufacturers has already started falling in China, with the Chinese government doing its part to promote consolidations and mergers between large enterprises. However, these policies will not be able to perfectly replace the 'invisible hand of the market,' and may prevent the industry's healthy development. While it is hard to predict how long it will take for the country's industry to resemble its overseas counterparts, it is inevitable that the large number of brands currently active is unsustainable.