China's slowing SUV sector doesn’t deter foreign car firms

By Li Xuanmin Source:Global Times Published: 2018/9/6 18:44:39

Producers put focus on younger drivers, smaller cities to drive sales

Cars parked inside of Volkswagen's new plant in North China's Tianjin. Photo: Courtesy of Volkswagen


Despite a slowdown in China's sport utility vehicle (SUV) market, foreign automakers are still gearing up to vie for a slice of the pie, with early starters rushing to roll out brand-new models to attract young consumers and latecomers building factories to bolster their presence in the market.

Volkswagen (VW), in partnership with FAW Group, has opened a new plant in North China's Tianjin Municipality, its fifth factory in China. The factory started production on August 30, and it will produce SUV models not only for the VW brand but also for Audi, the company announced at a press briefing in Tianjin. In addition to the SUV production line, it has also set aside space for eventual production of plug-in hybrid electric variants of SUVs.

The first car model that will be rolled off the 1-million-square-meter plant's assembly lines is a compact SUV called Tayron, which is the joint venture's second SUV to be ushered into the Chinese market, Jochem Heizmann, president and CEO of Volkswagen China, said at the press briefing. The Tayron model is scheduled to hit the market in October, targeting the high-end segment, according to Heizmann.

"The FAW-VW Tianjin plant is an important cornerstone of Volkswagen Group China's localization strategy…. We are creating the state-of-the-art infrastructure needed to meet our group's strategy of promoting electric cars and SUVs," Heizmann said. 

At the press briefing, the automaker also announced it will roll out another three SUV models in the next three years, including two advanced mid-sized models and a full-size SUV.

Hard to replicate success

Industry observers interpret the full-range SUV strategy as showing FAW-VW's ambition to capitalize on the domestic SUV market, which currently accounts for about 45 percent of its passenger vehicle sales.

However, some have also raised questions on whether FAW-Volkswagen - which has long been absent from China's booming SUV market - can actually gain a foothold as the nation recently posted a slide in SUV sales.

The automaker unveiled its first SUV model, the small-capacity T-ROC, on July 30, with prices ranging from 130,000 yuan ($19,025.59) to 210,000 yuan.

"FAW-VW has missed China's golden era of SUVs. Even if its first SUV T-ROC has received positive market feedback, it's almost impossible for the brand to replicate the success it had in the sedan car sector in China decades ago, in the SUV market now, due to the increasing number of competitors and a slowdown in market demand," Feng Shiming, a car analyst with Menutor Consulting, told the Global Times on Tuesday.

China's SUV sales in July plunged 6.91 percent year-on-year to 639,725, according to data from the China Passenger Car Association. 

"The older generation, which has a sense of hierarchy, used to regard FAW-VW as a 'divine brand' since almost all State-owned enterprises and government organs purchased its vehicles in the past," Feng said. But he stressed that things have changed, with younger generations rising to become drivers of consumption.

"Younger people are less affected by politics and they tend to be attracted to SUVs with fancy designs and smart facilities such as intelligent vehicles. FAW-VW does not enjoy an edge in this regard over some of its foreign competitors, as well as compared with local manufacturers," Feng added.

For example, in the Chengdu Motor Show, which kicked off on August 31 in Chengdu, capital of Southwest China's Sichuan Province, UK-based car manufacturer Jaguar unveiled its brand-new compact SUV E-Pace.

Chen Xuefeng, vice president of Chery Jaguar Land Rover Automotive Co, told the Global Times that the model, with all-round exterior LED lighting, surround sound system of well-known UK brand Meridian and a driver assistance system that has 16 settings for personalized driving models, is tailored for young consumers who seek individuality.

In addition to Jaguar, FAW-VW is also struggling in the SUV market under the pressure of other foreign rivals, such as Japan's Honda and Toyota, analysts pointed out.

At the same time, China's homegrown brands such as Great Wall Motor, which also launched a new compact SUV - the WEY VV6 - at the Chengdu Motor show, are garnering the young generation's attention. They're on the way to catch up with foreign automakers, noted Feng.

"Joint venture automakers need to pay technology transfer fees for every car they produce, which means that at the same price, the equipment of domestic vehicles is better than joint ventures… Why shouldn't consumers buy a car that is more cost-effective?" Feng added.

Possible advantages

However, as China slapped 25 percent tariffs on US-built vehicle imports, the move could potentially boost sales of VW over US rivals like Ford and General Motors as well as BMW and Benz, which have SUV production plants in the US, Mei Songlin, vice president and managing director of China operations at JD Power, told the Global Times on Wednesday.

Dong Huixiu, the vice general manager of commerce at FAW-VW, admitted in an interview with the Global Times that the company "missed the rapid-expansion period of the Chinese SUV market." But he stressed that the company's active full-range plan for its SUV line-up over the next three years, combined with its traditional advantage in sedan models, could possibly translate to a promising future.

"We're confident in our brand influence, strong marketing system, strong eco-environment, and well-developed sales channels… which could help us to grab more market share," Dong said.

Mei agreed and noted of the country's consumption upgrade in second- and third-tier cities, which could mean opportunities for the automaker. 

Feng noted that FAW-VW's vehicle-building technology accumulated in recent decades could be its great strength and give it more advantages in the auto industry's next battleground -- the new-energy vehicle (NEV) sector.

FAW-VW is preparing to move into the NEV segment. From 2019 to 2020, the group will launch about 10 NEVs based on the MEB modularized platform, which is designed for producing intelligence, interconnectedness and pure electric cars, according to Dong. 

"FAW-VW is not the first foreign brand to come up with an NEV strategy, but it is coming in full swing," Mei commented.

Newspaper headline: Slowing SUV sector doesn’t deter foreign car firms


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