Reputation of Chinese cars at risk

THE reputation of Chinese cars in the Australian market could be put at risk by small under-funded importers that do not have proper support systems, according to the head of Ateco Automotive, which will launch Chinese brands Chery and Great Wall Motors in early 2009.

Great Wall – which will come here as GWM, with a single Navara-style pick-up model – was to have been the first Chinese brand launched in Australia, with a planned retail launch in November, but this has been delayed by a few months.

Ateco managing director Ric Hull told GoAuto this week that the delay, which was caused by a supply problem, has been a Godsend because of the subsequent global economic meltdown, which has affected currency exchange rates by 30 per cent.

With the Great Wall launch being postponed, it is now an open race to have the first Chinese brand in Australia between Chery, GWM and the unexpected Lifan brand, all of which are now expected to arrive around the same time.

GoAuto revealed only three weeks ago that newly-registered Sydney company Chinese Motor Franchise (Australia) Pty Ltd had received ADR approval for the Lifan 520 small car on August 21 – becoming the first Chinese car to be approved – and would launch the brand here early next year.

Although Mr Hull was careful not to accuse the fledgling importer of lacking the necessary expertise or resources to launch a new brand, he did express concern that Chinese cars in general could get a bad reputation if they were launched without proper parts and service support.

“I am concerned – and this is not finger-pointing at Lifan at all because I don’t know their plans – that people will bring in products and not support them properly,” said Mr Hull, who learned of Lifan’s plans from GoAuto’s report.

“For whatever insane reason, people think that there’s a million bucks to be made overnight by importing Chinese product. It’s not like that.

“In the early days, it’s very difficult because you’ve got a lot of set-up costs and you’ve got a lot of marketing (cost) that is totally disproportionate (to sales) because you’re establishing a brand.

“I’m nervous that people will start bringing in Chinese products, but they won’t back them up properly, and that everybody will be tarred with the same brush. People will then say, ‘Oh, you can get these Chinese cars, but nobody gives you parts and service’.

Left: Chery A5, Lifan 520 and Ateco managing director Ric Hull.



“You know that we would not do that – and nor would Inchcape and nor would Sime-Darby none of the big importers would ever allow that to happen – but we know from the contacts we have in China that they have been visited by so many people from here and I would have thought very few of them would have the right level of credentials to do the job properly.” Mr Hull, an industry veteran who also helped pioneer Korean brands in Australia, said that it was critical for the Chinese brands to be well-supported with dedicated sales outlets, well-trained service departments, logistics, distribution, finance and so on, all of which Ateco has invested heavily in, not only for the new brands but for its established franchises (Alfa Romeo, Citroen, Fiat, Ferrari and Maserati).

“People tend to think that this is a sales and marketing business, and everyone can do that. I’m here to tell you it’s not like that at all it’s the underlying support that you put behind it that makes it work.” Ateco has recruited 70 multi-franchise dealers for the GWM launch, which is about 10 more than originally planned, and all of those in metropolitan and major provincial cities will have dedicated showrooms – but none of them sell existing Ateco brands.

“There should be no presumption that dealers that are excellent at selling the prestige and luxury products we have are also the best candidates to be doing high-volume value-for-money products,” Mr Hull explained.

“All of the competitive elements will be unique. Sales, marketing, service, everything that is specific to the brand will be stand-alone and unique – but things like finance, personnel, systems, these will draw on Ateco’s resources.

“Service areas will be signed appropriately and there will be a proper service reception, but they will almost certainly be in a shared facility,” said Mr Hull.

While the GWM ute (called the Sailor in China, but to be renamed for Australia) was ADR-approved “a couple of months ago”, the range of Chery vehicles – a light-sized hatch, a small sedan and a compact SUV – has not yet been submitted, but “they’re now moving down the homologation road quite quickly”.

Chery was always expected to launch in the first quarter next year and is apparently progressing on schedule, but the GWM hold-up appears to have been fortuitous for Ateco.

It is now assessing the economic climate before finalising launch pricing for the 2.3-litre dual-cab ute, which Mr Hull told us in June was to be very competitively priced at “well under $20,000”.

Mr Hull said that the GWM delay was caused by “a supply issue”.

“It wasn’t (a case of) getting production capacity. Great Wall have got plenty (of capacity). It’s just a glitch in supply, that’s all. These things happen all the time. And thank God it happened,” said a relieved Mr Hull.

“We’ve had no push-back from the dealers at all. It’s a new venture and, if they’re building facilities, it gives them a bit more time. I wrote to them a couple of weeks ago and said, ‘This is now the circumstances we’re in just bear with us’.

“I say again, thank God we hadn’t progressed further. If we’d gone ahead to the original schedule, we would have had stocks in dealerships and, once you’ve taken that step, there’s no backing away. Once you’re supplying a product to a network, I don’t know how you interrupt that. It becomes very untidy.

“The dealer side of it has been marvelous. We’re going to have 70 dealers at launch, which is probably more than we wanted, (but) they’re really good quality dealers. We’ve been able to put them on hold … we’re saying, ‘Please, just pause a minute – we now think we’re launching in the first quarter of next year, but we’ll need time for the dust to settle’.

“When you’re looking at a 30 per cent change in the circumstances, it’s quite dramatic,” said Mr Hull, referring to the change in the value of the Australian dollar against the Chinese yuan in recent weeks.

Despite the monetary upheaval, and the fact that it is difficult to “hedge” against other currencies because the yuan is not traded on world money markets, Mr Hull said that Chinese cars would retain a price advantage in the market regardless of where the exchange rates settle, though perhaps not against Korean cars.

“The Aussie dollar has devalued against the Chinese yuan by pretty much the amount that it has devalued against the US dollar, so it’s a whopping shift.

“By the same token, the dollar has moved against virtually every other currency that we buy cars in, with the exception of Korea. The Korean wan has also devalued quite dramatically because (their) economy is in such appalling shape. If nothing changed and the Koreans are able to do business in the way they have been doing, they’ve just had a giant free kick (in Australia).

“We had a pricing position agreed for launch products with GWM, but I don’t know what that means at the moment. We’re going to have to be keenly priced to get people to accept products from China – that’s the expectation on everything that comes out of China.

“I’m taking the view that, in time, everything will settle and that, if China had a relative advantage when the dollar was 95 cents, then it will still have it at whatever level the dollar settles at. But it’s just been so volatile. Last week it lost five cents in a morning – it’s unprecedented, nobody can give you worthwhile guidance at all. Nobody’s seen anything like it.

“I’d much rather wait until we think there’s some certainty in the circumstances. It’s just too volatile at the moment to call anything. When you see it flip-flop five cents in a morning, you say, ‘Hey, this isn’t real world. I can’t make any sensible decisions in this climate.’ “One of two things will happen when the dust settles – either the dollar will recover some of its value – I don’t think it will recover all of it – or the market will move to a new water level. If the dollar recovers, we can think in pricing similar to the prices that we had always anticipated, or the market will move for virtually everyone to new levels and we’ll be competitive at that level.

“Australia appears to be better-placed than many other western economies I think there is going to be continued demand out of China regardless of the fact that commodity prices will fall. I think the growth there is almost unstoppable and it’s not that export-dependant.

“It’s very hard to make any sensible predictions with a currency that’s flip-flopped 30 per cent and with an economic climate that’s just so uncertain at the moment. But we’ve been through all sorts of threats to the market and to the economy before and I’ve no doubt that things will settle and that we’ll be able to go forward.

“I’ve never thought this would be a cakewalk in the early days, but I think that what we’re doing strategically with securing brands from China is absolutely right in the three- to five-year timeframe. I’m convinced of it. You’ve always got to think long-term in this business.”

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