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Is new Dongfeng brand model a game-changer?
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The story of Dongfeng Fengshen L60, the latest compact sedan churned out by China’s domestic carmaker Dongfeng, comes down to two simple questions: where does it come from and where will it go?
The origin of this car, launched in Wuhan, central China’s Hubei Province this month, is quite complicated. It was developed based on the PF2 platform of PSA, the French carmaker and joint venture partner of Dongfeng since 1992. It was manufactured by Dongfeng Peugeot Citroen Automobile and is being sold under Dongfeng’s own brand Fengshen.
As a domestic car, it doesn’t quite fit into any existing management pattern. The beaten path is one of domestic carmakers or their joint ventures taking all the burden.
In many cases, the latter simply rebrand older models of existing cars in response to the Chinese government’s call for local research and development results.
That method underscores a brutal truth: it is very difficult to make and market a new brand. China’s car market is flooded with brands, just like Europe was in the 1950s, and history shows that very few actually survived, said Qiu Xiandong, general manager of Dongfeng Peugeot Citroen.
So to whom does a successful joint-venture brand belong under a 50-50 partnership? How could PSA manage a half of a brand in addition to its own Citroen, Peugeot and DS brands? The question also puzzles Dongfeng, Qiu admitted.
Why not blaze a whole new path? That idea seemed clear back in September 2012, when Dongfeng, PSA and their joint venture signed an agreement to deepen their ties. Under the pact, the joint venture would develop its own products carrying the Dongfeng logo and use Dongfeng’s distribution network for sales. Dongfeng and the joint venture would share product design and own its intellectual properties, with PSA offering a vehicle platform as technical support.
The complex relationship became more knotty when Dongfeng last year bought a 14 percent stake in PSA to become one of its biggest shareholders.
Most carmaking joint ventures in China are just original equipment manufacturing arms for multinational companies for China. But that shouldn’t be the way of the future, said Liu Weidong, deputy general manager of Dongfeng Motor Corp.
Qiu agreed. He said China’s auto industry is entering a post-joint venture era. After more than 30 years of co-production, it is time to move on to the next stage by exploring new forms of teamwork at the global level and throughout the industrial value chain.
With 57 percent of the joint venture with PSA now directly or indirectly held by Dongfeng, the Chinese carmaker has the clout to push the venture into new strategies.
Dongfeng Peugeot Citroen runs PSA’s operations in Southeast Asia and is actively exploring business opportunities in the Middle East and Africa.
“The domestic market will soon reach a saturation point,” Liu said. “The only way out is to go overseas.”
As China’s car sales growth continues to moderate, the overcapacity issue lurks behind intensifying competition. That trend that “is expected to continue and will expedite consolidation,” said audit, tax and advisory firm PwC in its latest auto industry report.
Cross-brand production is widely seen on the assembly lines of international brands, a trend Dongfeng would like to seize, starting with the Fengshen L60.
“This is what we must try,” Liu said. “In the future, more factories will base their production on vehicle platforms. Modular production is best for keeping costs down and quality up. But it is difficult at the execution level, especially when it comes to integrated data, quality controls, logistics management and staff training.”
Dongfeng is well aware that pricing is the biggest challenge for domestic car brands, whose premiums are valued 15 percent to 20 percent lower than those of foreign carmakers. The cost of Fengshen L60 has been pared by 25 percent. Its price is yet to be announced.
PSA once doubted that a car’s quality is diminished as costs drop. Now, it is applying all of its hack-and-slash achievements to PF2 platform, Liu said.
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