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back to index backCHINAtalk April,  2005


Rising oil prices, stiff competition put a dent in the hopes of Chinese SUV makers

Soaring oil prices along with a bitter competitive rivalry, seem to be putting a dent in the hopes of Chinese sport utility vehicle makers, the Shanghai Daily reported. The article was prompted by the fact that China's state-owned refinery industry hiked retail gasoline prices 7% late last month in an effort to keep pace with soaring global crude prices. Diesel was held steady to avoid raising the cost of inputs for industry and agriculture, but most private vehicles in China run on gas.

Chery Entry:

Shanghai Daily said four new SUV models were launched last month alone, and at least 10 more are expected to come to market before the end of the year. Among the companies getting into the business are Chery Automobile, the homegrown major with aspirations to begin exports to the United States and perhaps Europe as soon as 2007. It launched the 2.4-liter Tiggo” last week in models priced at C¥125,800 and C ¥139,800 ( $15,156, and $16,884). Those stickers aren't out of line, but they are no great attraction in a market that already has 36 companies making SUVs, and therefore a whole lot of competition.

Ambitions:

Given its ambitions, Chery can ill-afford an adventure into a new vehicle that doesn't sell well. Illustrating the depth of the problem, Great Wall Automobile rolled out its Hafu CUV,” or city utility vehicle, a hybrid suited to the rugged city life, even as it confessed that actual sales last year were much weaker than its initial report. The South China Morning Post, which termed Great Wall the mainland's largest privately controlled car-maker,” said the company had shocked investors” by announcing that its actual sales last year came to only 47,416 vehicles, or 14% fewer than the 55,091 it originally reported. The company said it had to lower its published results because it is obligated to buy back more than 7,600 trucks and other vehicles from dealers who have been unable to sell them. The company is obliged to do so because it backed bank financing the dealers used to buy the vehicles from it in the first place. Great Wall doesn't look like it is in financial trouble at the moment. Though it reported a 23% decline in net profit for 2004, it still earned C¥402.9 million ($48.65 million), on sales that skidded 13.73% to C¥3.18 billion ($384 million).

Investor Doubts:

But given the sponginess of its unit sales figures, and the fact that materials costs rose significantly during the year, investors could be forgiven for having some doubts. Two other automakers also rolled out new SUVs this month, adding to the glut. The Shanghai Daily said one auto industry analyst observed that SUVs consume much more fuel than traditional sedans. At a time when fuel prices are high and sedans are getting cheaper,” there is little doubt about how consumers will choose.

Discounts:

The paper added that Rao Da, secretary general of the National Car Makers Association, told an industry meeting last month that he expects SUV makers to have to discount more than sellers of standard passenger cars this year. That was partly based on the fact that NCMA figures showed a 2.68% decline in SUV sales for January and February, even as the broader market managed a modest expansion.

For a free, sample copy of the Japan Automotive Digest, click here.

Source: Japan Automotive Digest - GAI

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