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Automakers on uphill road to build brand in China






A model stands next to a Peugeot RC HYbrid4 car on display at the Shanghai International Auto show April 21, 2009. REUTERS/Aly Song
A model stands next to a Peugeot RC HYbrid4 car on display at the Shanghai International Auto show April 21, 2009. REUTERS/Aly Song
</head> <body> <p>By Fang Yan and Doug Young</p> <p>SHANGHAI/HONG KONG (Reuters) - After driving his BMW 5 series model for just three years, Chinese futures trader Jerry Lin traded in his car for an Audi A6.</p> <p>His decision had less to do with performance and more with image: BMWs have become associated with China's nouveau riche, while Audis are favoured by 'old money' and senior government officials.</p> <p>"When people made money the first thing they did was get a BMW," says Lin, who lives in Wenzhou, a city known for its rich entrepreneurial culture. "I had a lot of fun driving my BMW. Now, I want to try something different."</p> <p>China's car market is the world's largest with growth opportunities that are dazzling. About 10 million vehicles will be bought in China this year, a 500 percent increase from 2000.</p> <p>Yet despite the opportunities, foreign automakers face an uphill battle marketing cars in an intensely competitive and fickle market.</p> <p>"The huge amount of foreign brands pushing into the Chinese market somehow overloads potential customers with far too much information," said Jochen Goller, Vice President of marketing for BMW China <BMWG.DE>.</p> <p>"So it is getting more and more difficult to get brand and product messages through to and understood by the audience."</p> <p>BMW tries to separate itself from the rest of the luxury car pack with "experiential marketing," hosting events such as a car rally across China called Destination X which has received 35,000 applicants for only a few places in this year's race.</p> <p>Despite the novelty of such campaigns as well as viral marketing initiatives such as a social networking website for BMW owners, industry experts say Chinese consumers have little brand loyalty.</p> <p>"Few foreign automakers have successfully differentiated their brands in China so far because pricing, more than anything else, is still the number one concern for most buyers," said Huang Zherui, an analyst with CSM Worldwide, a global industry consultancy.</p> <p>"Customer loyalty is almost an unheard of concept here and even a moderate price-cut can easily swing customers away to the competing brands," Huang added.</p> <p>In China's luxury sector, which makes up about 5 percent of car sales, Audi and BMW owners are starting to switch brands without a second thought.</p> <p>"We have an Audi at home. I am here to pick a BMW as a birthday gift," said a woman, who gave her name only as Wu, as she inspected a BMW 7 model at a Shanghai dealership.</p> <p>OVER THE HILL</p> <p>While names such as Toyota <7203.T>, Volkswagen <VOWG.DE> and Honda Motor <7267.T> have well-defined images in the West, honing their brand in China is challenging due to huge demographic differences in a country where many people rode bicycles as their primary mode of transport just a decade ago.</p> <p>In some cases, circumstance plays a crucial role in creating brand equity. Take General Motors' <GM.UL> Buick, a car seen as over the hill back home where sales have been dropping.</p> <p>Yet in China the Buick enjoys enormous success with a prestigious brand cachet that dates back to the early 20th century when historical figures such as Pu Yi, the last emperor of China, and Zhou Enlai, communist China's first premier, owned, drove or were driven in Buicks, GM said.</p> <p>In fact, the Buick is enjoying double digit growth in China where sales have already topped 2 million. Other popular cars are VW's Passat, Honda's Accord and Toyota's Camry and Corolla.</p> <p>Tailoring its models to the tastes of Chinese consumers, GM sells Cadillacs and other sedans with roomy backseats as many well-heeled Chinese prefer to be chauffeured through traffic-choked roads in China's mega-cities.</p> <p>Even Porsche launched a relatively staid four door sedan in China this year which offers ample leg room for company executives traveling in the backseat.</p> <p>Drivers are often used for corporate cars and among the well-heeled because the commutes to work in China's traffic-clogged roads can be long, tiresome affairs. And drivers are cheap, earning just a few hundred dollars a month.</p> <p>BLAND BRANDS</p> <p>Gloomy predictions for car sales in China this year due to the financial downturn were swept away by a multi-billion dollar government stimulus plan that included tax breaks and sales tax cuts on some car models, fuelling a demand spurt at a time when many factories had slowed down production.</p> <p>Demand for new cars jumped so high, so quickly that some customers have had to wait weeks for deliveries of new vehicles due to manufacturing logjams.</p> <p>Industry analysts predict double digit sales growth in the coming years as more first-time car buyers enter the market and China's wealthy and upper middle class become two car families.</p> <p>Many of the cars that will end up on Chinese roads will come from the factories of domestic brands such as Geely <0175.HK>, Chery and Brilliance China Automotive Holdings <1114.HK>.</p> <p>The local brands are significantly cheaper but so is their quality. Car prices can range from 300,000-700,000 yuan ($44,000 to $102,000) for top range cars from the BMW 3 and 5 series and Audi A4 and A6. Meanwhile, the cheapest local brands such as Chery's QQ can go for as little as 30,000 yuan ($4,400) or less.</p> <p>Cars in the luxury category include BMW, Audi, Toyota's Lexus, Honda's Acura, Nissan Motor's Infiniti <7201.T> and General Motor's Cadillac which offers a model that stretches about 10 cm longer in the back for the local market.</p> <p>In sharp contrast to its sporty and sophisticated reputation in most of the world, BMW's flashy image in China owes much to the company's entry to the market in the mid-1990s when the first generation of newly wealthy began to emerge.</p> <p>Desirable or not, the nouveau riche image has helped make China one of BMW's fastest growing markets, with sales up 28 percent to 65,822 units last year.</p> <p>"Some super rich people have actually been collecting BMWs, getting one not just for themselves but for their wives, kids and even their mistresses," says Lin, the futures trader.</p> <p>Audi, meanwhile, benefited in a different way as the only foreign car brand on government procurement lists until recently, helping its A6 to become a favorite among senior Chinese officials.</p> <p>Such unofficial endorsement has not only helped Audi, VW's luxury brand, get a fifth of its annual China sales from government bodies, but has also made it a favorite among China's new generation of business elite who often depend on government connections to get their jobs done.</p> <p>"Audi buyers are people who want to keep both feet on the ground. They want to convey a very down-to-earth but still powerful image," said Klaus Paur, director of automotive industry market research firm TNS's North Asia branch.</p> <p>(Editing by Megan Goldin)</p> </body> </html> </div><!-- end article-body --> </div><!-- end aticle-body-wrapper --> <aside> <ul class="social-share-btns clearfix"> <li><g:plusone size="medium" href="http://whtc.com/news/articles/2009/sep/07/automakers-on-uphill-road-to-build-brand-in-china/"></g:plusone></li> <li><div id="fb-root"></div><script src="http://connect.facebook.net/en_US/all.js#appId=112315878855956&xfbml=1"></script><fb:like href="http://whtc.com/news/articles/2009/sep/07/automakers-on-uphill-road-to-build-brand-in-china/" action="recommend" send="true" layout="button_count" width="150" show_faces="false" font=""></fb:like></li> <li><a href="http://twitter.com/share" class="twitter-share-button" data-url="http://whtc.com/news/articles/2009/sep/07/automakers-on-uphill-road-to-build-brand-in-china/" 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