Manufacturing News

Chinese automakers tap Lexus playbook for upscale cachet

As more consumers aspire to buy cars and SUVs with cachet, Chinese brands want to shed their reputations as mass-market rides and go upscale with them.

Cheap is no longer chic for China's automakers.

As more consumers aspire to buy cars and SUVs with cachet, Chinese brands want to shed their reputations as mass-market rides and go upscale with them.

Great Wall Motor Co. and Geely Automobile Holdings are unveiling new premium brands they want drivers to consider in the same league as a Lexus or Genesis.

In China, car companies are trying to follow the paths of Japanese and Korean competitors that engineered image makeovers. With auto sales in China surging more than 15 percent, local manufacturers don't want to cede the high-end demographic ¡ª with its higher profits -- to foreign brands.

"Chinese automakers today are at a stage where they believe it's necessary to move upmarket," said Zhou Jincheng, an analyst at Fourin Inc. in Nagoya, Japan. "If they don't try now while the market is growing, it will be even harder to start when the market is stagnant."

The manufacturers seek to capitalize on an economy that grew 6.7 percent in the third quarter, moderate by Chinese standards but outpacing the U.S.'s 2.9 percent expansion. As the economy grows, people have more money to spend. Through September, disposable income per capita rose 6.3 percent from a year earlier to 17,735 yuan.

Billionaire Wei Jianjun built Great Wall into China's largest SUV maker by pricing vehicles at a fraction of comparable foreign nameplates such as Volkswagen. But in the past four years, he's spent 10 billion yuan ($1.5 billion) to create a premium brand called Wey -- a phonetic spelling of his surname.

At this month's Guangzhou Auto Show, he unveiled three Wey-branded SUVs with prices starting at 150,000 yuan. The SUVs have features usually found in more expensive foreign models, such as a warning system for lane changes and a 'smart' cruise control that maintains a safe distance from the car ahead.

The cars culminate a four-year effort by more than 1,600 workers, Wei said.

Flag carrier
"Wey's mission is to carry the flag for Chinese luxury SUVs globally and to end the era of excessive profits earned by foreign brands in China," Wei said. "The luxury Wey stands for is not unattainable."

Fellow billionaire Li Shufu introduced Geely's upscale brand Lynk & Co. The cars will be built in China on the same platform used by Li's other company, Volvo Cars. They will be sold globally.

Lynk & Co. will start sales in the second half of next year, said Gui Shengyue, Geely's CEO. The cars will be electric and will connect to the Internet through technology developed with Microsoft Corp. and Alibaba Group Holding.

That's a long way from 2004, when Geely introduced a no-frills sedan for 29,999 yuan.

Billionaire pedigree
The billionaire pedigree, and the hiring of executives from European brands such as Audi AG, may help the Chinese succeed.

Introducing new marques can help carmakers eliminate the baggage of the past and convince customers to pay higher sticker prices, said Stephen Dyer, a Shanghai-based partner at Bain & Co. overseeing the China auto market.

"It may be helpful to emphasize that though the brand is Chinese-owned, it relies on global resources, so it's not a 'Chinese car' per se," Dyer said.

The new brands still have to differentiate themselves in showrooms already packed with more than 100 nameplates.

Domestic brands are still perceived to trail overseas peers in quality, according to rankings by J.D. Power. Consumers prefer foreign brands such as Hyundai-Kia, Jeep and Honda for such attributes as interior and exterior styling, comfort and handling.

Cars with integrated audio, communication, entertainment and navigation features are most appealing to Chinese buyers, yet domestic automakers aren't providing those features quickly enough, according to J.D. Power's Automotive Performance, Execution and Layout study released on Oct. 19.

Longer history
A case in point is Gavin Li, 26, who browsed the new Wey models at the Guangzhou show, not far from Nissan Motor Co.'s Infiniti display.

"It still doesn't have the same texture as foreign brands do," he said.

"I'd still rather buy a Nissan Teana since Nissan has a history of making cars longer than Great Wall does."

Great Wall, Geely and Qoros Auto -- a joint venture between Chery Automobile Co. and Israel's Kenon Holdings -- are trying to emulate what Toyota Motor Corp. did with Lexus in the 1980s and what Hyundai Motor Co. did more recently with the Genesis marque.

Chinese consumers show more of a preference for luxury brands than their counterparts in the United States and Europe, according to LMC Automotive Consulting Co. in Shanghai. The best-selling premium-priced car is Volkswagen's Audi, which is priced from 184,900 yuan.

About 25 percent of all new cars sold in Beijing, Shanghai, Guangzhou and Shenzhen are premium brands, according to LMC Automotive Consulting. That compares with 16 percent in Germany and 14 percent in the United States, said John Zeng, LMC's managing director.

Best model
Part of that is because of rising incomes, and part is because of China's rules of the road. Major cities imposed ownership restrictions to ease traffic congestion, and that pushed consumers to buy the best model they could afford because it's the only car they can have.

The best-selling SUV in China is Great Wall's Haval 6, priced from 88,800 yuan to 162,800 yuan. Sales nearly doubled in the first 10 months compared with the same period last year, according to a company filing.

Vehicles under the new brand, Wey, will be positioned to sell for 200,000 yuan when it debuts as soon as April. To add a foreign sheen, Great Wall hired Jens Steingraeber, 57, a former Audi executive, to be Wey's brand CEO.

His team in the city of Baoding includes a former BMW designer and a former Alfa Romeo interior designer.

"A new brand is a must," said Yale Zhang, managing director at researcher Autoforesight Shanghai Co. "The demographic group for cars around 200,000 yuan won't accept a nameplate that reminds you of a model priced at 30,000 yuan."

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