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Domestic carmakers seek solace in fleet procurement
By Lu Nengneng |
March 25, 2013, Monday
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Print Edition
Print Edition
CHINESE car brands are poised to benefit from government directives stipulating domestic vehicles for public fleet procurement, but will that be enough to turn the tide on what has been lackluster performance in their home market?
Final details of the new directives are expected soon, with the budgets for government cars expected to be cut to a maximum of 160,000 yuan (US$25,760) from 250,000 yuan and maximum displacement reduced to 1.8 liters from 2.0 liters. Both price and size tilt purchases toward domestic car brands, the dominant players in the mid-to-low end of the market.
China's new President Xi Jinping has reportedly urged party officials to ride in domestic instead of foreign-brand cars.
Though a policy has been on the books since 2009 directing that domestic brands should comprise at least 50 percent of government fleet orders, compliance is said to be far below that level.
Auto analyst Zhang Zhiyong said Xi's words clearly signal a reversal of the years-old official preference for international brands in government fleet procurement.
Since the end of last year, many provincial governments and central administrations have begun heeding the "Buy China" directive, with the Red Flag H7 model of FAW and the Roewe 950 model by SAIC Motor leading the sales pack.
It's a timely trend for Chinese carmakers, which saw their share of the market drop below 40 percent last year.
Though government purchases account for only an estimated 2 percent of China's total car sales, officials can set an example that will spill over into private consumption, said Wu Song, general manager of GAC Motor.
China does have a history of favoring domestic players as suppliers for government fleets. Red Flag and Shanghai were popular for official transport in the 1980s. That changed when overseas carmakers began entering China, and officials and ordinary citizens alike became enamored of anything foreign.
It all comes down to quality, Zhang said. In the past, foreign models like Audi and Volkswagen attracted officials because of their design and advanced technologies. Domestic brands, by contrast, were considered the clunkers of the market.
Xu Shili, who oversees the development of the Red Flag H platform at FAW, once acknowledged that the gap between domestic and foreign car brands needs to narrow. Domestic automakers need to lift their game, along with supplier industries like rubber and steel.
Zhang said the domestic auto industry can't relax those efforts just because government officials are being pushed to buy the home-grown models now.
Some analysts worry that "back-door" connections will favor one domestic brand over another, creating exclusive suppliers.
If relationships, not quality, determine car sales, the industry won't have much incentive for self-improvement.
An even bigger challenge for domestic automakers will be to convince private consumers that China-made autos are stylish and quality competition to foreign cars.
Final details of the new directives are expected soon, with the budgets for government cars expected to be cut to a maximum of 160,000 yuan (US$25,760) from 250,000 yuan and maximum displacement reduced to 1.8 liters from 2.0 liters. Both price and size tilt purchases toward domestic car brands, the dominant players in the mid-to-low end of the market.
China's new President Xi Jinping has reportedly urged party officials to ride in domestic instead of foreign-brand cars.
Though a policy has been on the books since 2009 directing that domestic brands should comprise at least 50 percent of government fleet orders, compliance is said to be far below that level.
Auto analyst Zhang Zhiyong said Xi's words clearly signal a reversal of the years-old official preference for international brands in government fleet procurement.
Since the end of last year, many provincial governments and central administrations have begun heeding the "Buy China" directive, with the Red Flag H7 model of FAW and the Roewe 950 model by SAIC Motor leading the sales pack.
It's a timely trend for Chinese carmakers, which saw their share of the market drop below 40 percent last year.
Though government purchases account for only an estimated 2 percent of China's total car sales, officials can set an example that will spill over into private consumption, said Wu Song, general manager of GAC Motor.
China does have a history of favoring domestic players as suppliers for government fleets. Red Flag and Shanghai were popular for official transport in the 1980s. That changed when overseas carmakers began entering China, and officials and ordinary citizens alike became enamored of anything foreign.
It all comes down to quality, Zhang said. In the past, foreign models like Audi and Volkswagen attracted officials because of their design and advanced technologies. Domestic brands, by contrast, were considered the clunkers of the market.
Xu Shili, who oversees the development of the Red Flag H platform at FAW, once acknowledged that the gap between domestic and foreign car brands needs to narrow. Domestic automakers need to lift their game, along with supplier industries like rubber and steel.
Zhang said the domestic auto industry can't relax those efforts just because government officials are being pushed to buy the home-grown models now.
Some analysts worry that "back-door" connections will favor one domestic brand over another, creating exclusive suppliers.
If relationships, not quality, determine car sales, the industry won't have much incentive for self-improvement.
An even bigger challenge for domestic automakers will be to convince private consumers that China-made autos are stylish and quality competition to foreign cars.
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