New sourcing list may boost China-brand vehicles
By Vivian Jin |
March 8, 2012, Thursday
|
Print Edition
Print Edition
Government officials who used to luxuriate in the back seats of fancy Audi sedans may soon be chauffeured around in China-brand autos.
A recent preliminary list for 2012 government fleet purchases from the Ministry of Industry and Information Technology showed only Chinese models are eligible for procurement.
The new guidelines, which have been circulated for public comment, cover 265 sedan models, 78 sport-utility vehicles, 46 multi-purpose vehicles and five green vehicles from domestic automakers such as SAIC, FAW, Geely and BYD.
Government fleets were previously dominated by foreign brands as a statement of status, with their larger space and higher-profile reputations.
The central government hasn't disclosed its reasons for the policy change. Dong Yang, secretary-general of the China Association of Automobile Manufacturers, said the new policy follows a common international practice of favoring domestic brands and that government purchases are excluded from World Trade Organization rules on competition.
However, industry analysts surmise that it may be part of a plan to control costs by resorting to cheaper Chinese brands and also to show the government wants to bolster the domestic industry as the quality of its cars improves.
"Domestic carmakers in China are under pressure from international brands," said Klaus Paur, director of automotive research group Ipsos in Shanghai. "A ban on foreign cars for official vehicle fleets would ensure additional sales for domestic brands and a more enhanced public exposure."
The government's policy switch came as no surprise to many foreign automakers. New procurement standards, released last November, require models with engine capacities of less than 1.8-liters and costing no more than 180,000 yuan (US$28,571). The new criteria eliminates major luxury carmakers.
The stringent guidelines also require domestic carmakers to invest at least 3 percent of their core revenue into research and development, and bar any major new Sino-foreign joint ventures that only assemble cars in China.
John Zeng, head of LMC Automotive, estimates that government purchases account for about 10 percent of the nation's auto sales, a relatively small proportion of China's overall market. But given the fact that more than 18 million vehicles were sold last year in China, it's still a very lucrative segment.
Small impact
Foreign carmakers, not anxious to get on the wrong side of the government, have said little about the new policy. Shanghai General Motors, whose Buick models have been a favorite of local government officials in Shanghai for years, merely said that government purchases account for a small proportion of its sales.
BMW and Audi said they would respect government regulations, and their businesses wouldn't be affected that much.
Audi, perhaps, has the most to lose among the top three premium carmakers in China. The German-based company has been supplying A6 and A4 sedans to officials for a long time, securing an inside track with government procurement. About 20 percent of its business has come from the government.
At the same time, the automaker has been expanding its line of models to include sportier and more compact models as it seeks to reshape its brand image and make inroads into private car ownership - a diversification that may lessen the impact of less government business.
"The actual impact of this ruling will depend on how strictly the regulation is enforced," said Klaus. "We may anticipate significant resistance from local governments. Brand reputation and status are still important purchase reasons for officials, which makes foreign luxury cars desirable, particularly for 'higher ranks'."
New rule may raise profile
As China has emerged as the world's biggest car market, the auto-making industry has undergone dramatic changes. Where once vehicles were pretty much the sole purview of government and other institutional officials, individual consumers have now moved into the market in a big way.
Dominique Boesch, president of the Audi sales division in China, recently said his company plans to expand its portfolio of models to address the growing market of private customers.
"Our approach is to cover all necessary segments by 2015," he told reporters at the launch of three A5 premium models targeted at wealthy entrepreneurs and other affluent buyers.
According to its plan, Audi will launch the new long-wheel based A6L in China. It will also import the Q5 hybrid sport-utility vehicles and other high-performance sedans, while adding the compact A3 and Q3 models to local production soon.
On the domestic side of the new government equation, big domestic auto groups such as FAW Group and SAIC stand to benefit the most.
"Big auto companies in China have poured millions of yuan into research for their own brands, but they have yet to convince private consumers of their merits," said Zeng. "The new ruling might give them the chance to raise their profile in the mid-to-high auto segment."
Both SAIC and FAW have models of similar size to Audi and Mercedes-Benz brands. SAIC is also working on a project to revive its Shanghai brand, which used to ferry government officials around before foreign automakers got their claws into the market.
FAW Group, which has the Besturn mid-to-high class sedan, will also make a big investment to renovate the Red Flag sedan, a car famous for transporting top central government leaders, including Chairman Mao Zedong, until the 1970s.
A recent preliminary list for 2012 government fleet purchases from the Ministry of Industry and Information Technology showed only Chinese models are eligible for procurement.
The new guidelines, which have been circulated for public comment, cover 265 sedan models, 78 sport-utility vehicles, 46 multi-purpose vehicles and five green vehicles from domestic automakers such as SAIC, FAW, Geely and BYD.
Government fleets were previously dominated by foreign brands as a statement of status, with their larger space and higher-profile reputations.
The central government hasn't disclosed its reasons for the policy change. Dong Yang, secretary-general of the China Association of Automobile Manufacturers, said the new policy follows a common international practice of favoring domestic brands and that government purchases are excluded from World Trade Organization rules on competition.
However, industry analysts surmise that it may be part of a plan to control costs by resorting to cheaper Chinese brands and also to show the government wants to bolster the domestic industry as the quality of its cars improves.
"Domestic carmakers in China are under pressure from international brands," said Klaus Paur, director of automotive research group Ipsos in Shanghai. "A ban on foreign cars for official vehicle fleets would ensure additional sales for domestic brands and a more enhanced public exposure."
The government's policy switch came as no surprise to many foreign automakers. New procurement standards, released last November, require models with engine capacities of less than 1.8-liters and costing no more than 180,000 yuan (US$28,571). The new criteria eliminates major luxury carmakers.
The stringent guidelines also require domestic carmakers to invest at least 3 percent of their core revenue into research and development, and bar any major new Sino-foreign joint ventures that only assemble cars in China.
John Zeng, head of LMC Automotive, estimates that government purchases account for about 10 percent of the nation's auto sales, a relatively small proportion of China's overall market. But given the fact that more than 18 million vehicles were sold last year in China, it's still a very lucrative segment.
Small impact
Foreign carmakers, not anxious to get on the wrong side of the government, have said little about the new policy. Shanghai General Motors, whose Buick models have been a favorite of local government officials in Shanghai for years, merely said that government purchases account for a small proportion of its sales.
BMW and Audi said they would respect government regulations, and their businesses wouldn't be affected that much.
Audi, perhaps, has the most to lose among the top three premium carmakers in China. The German-based company has been supplying A6 and A4 sedans to officials for a long time, securing an inside track with government procurement. About 20 percent of its business has come from the government.
At the same time, the automaker has been expanding its line of models to include sportier and more compact models as it seeks to reshape its brand image and make inroads into private car ownership - a diversification that may lessen the impact of less government business.
"The actual impact of this ruling will depend on how strictly the regulation is enforced," said Klaus. "We may anticipate significant resistance from local governments. Brand reputation and status are still important purchase reasons for officials, which makes foreign luxury cars desirable, particularly for 'higher ranks'."
New rule may raise profile
As China has emerged as the world's biggest car market, the auto-making industry has undergone dramatic changes. Where once vehicles were pretty much the sole purview of government and other institutional officials, individual consumers have now moved into the market in a big way.
Dominique Boesch, president of the Audi sales division in China, recently said his company plans to expand its portfolio of models to address the growing market of private customers.
"Our approach is to cover all necessary segments by 2015," he told reporters at the launch of three A5 premium models targeted at wealthy entrepreneurs and other affluent buyers.
According to its plan, Audi will launch the new long-wheel based A6L in China. It will also import the Q5 hybrid sport-utility vehicles and other high-performance sedans, while adding the compact A3 and Q3 models to local production soon.
On the domestic side of the new government equation, big domestic auto groups such as FAW Group and SAIC stand to benefit the most.
"Big auto companies in China have poured millions of yuan into research for their own brands, but they have yet to convince private consumers of their merits," said Zeng. "The new ruling might give them the chance to raise their profile in the mid-to-high auto segment."
Both SAIC and FAW have models of similar size to Audi and Mercedes-Benz brands. SAIC is also working on a project to revive its Shanghai brand, which used to ferry government officials around before foreign automakers got their claws into the market.
FAW Group, which has the Besturn mid-to-high class sedan, will also make a big investment to renovate the Red Flag sedan, a car famous for transporting top central government leaders, including Chairman Mao Zedong, until the 1970s.
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