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Chinese carmakers closing quality gap

Published: 10:21PM Saturday April 24, 2010 Source: Reuters

When Ric Hull first looked at launching Great Wall Motor pickup trucks in Australia last year, he considered rebranding them, worried their obvious Chinese origins would raise questions about their quality.

Ateco Group, Hull's auto importing and dealership company, decided against marketing the low cost models under "GWM" label, instead embracing the trucks' made in China credentials, and sales are booming.

"We initially thought: do we resolve the brand question, do we call them GWM? But then we thought that people would know anyway, and that seems to be working very well," Hull said.

"The thing that's fascinated us about China is how rapidly they are progressing. The cars, just a few years ago, would not have been saleable in markets like ours. But today they are," Hull told Reuters at the Beijing Auto Show this week.

Global auto executives gathered at the biannual event are also recognising the stiffer competition they face as Chinese rivals step up their quality standards.

Chinese carmakers, some with the help of foreign partners, have rapidly improved vehicle quality as they prepare to take on established international brands such as Volkswagen, General Motors and Hyundai Motor in the higher segments of the market that they dominate in China.

With such improved quality and cut-rate prices, established automakers could one day be competing against China's most successful brands not only in China but on the global stage, executive said.

"I have no doubt about it," Nissan Motor CEO Carlos Ghosn told a small group of reporters at the Beijing auto show. "This may take time. Obviously today, when you take a look at a show like this, there is more improvement to be made.

"Some Chinese brands are going to...gain credibility. They're going to be acquiring know-how, like the Volvo acquisition," he said, referring to Geely Automobile's deal last month to buy Volvo Cars from Ford Motor.

Climbing the ladder

Mitsubishi Motors President Osamu Masuko agreed, saying he was impressed when he recently test-drove BYD's F6 sedan.

"For a company that's only been in this business for a few years, it's remarkable," he said. "And they're going to keep improving with every model change. One day, Chinese automakers could be a formidable competitor."

Toyota Motor's R&D chief, Takeshi Uchiyamada, also said he saw big improvements in the interior and exterior packaging as he walked around the auto show.

"These are show models so I don't know how they would actually drive, but the products on display look a lot better than they did in the past," he said.

Some analysts say that Chinese brands could become rivals outside their native market sooner than most automakers reckon.

"Chinese car companies are climbing the technology and quality ladder at such a pace that we believe within a few years, some domestic brands will able to compete with global brands both at home and overseas," Nomura International analyst Yankun Hou wrote in a recent report.

Hou said he saw SAIC, Geely, BYD, Great Wall Motor and Chery as potential winners down the line.

A global issue

To be sure, managing quality is not only a Chinese issue.

The explosive growth in the China market has put major automakers on watch as well, especially after the global vehicle recalls that roiled Toyota earlier this year.

Established automakers are focusing on how to keep quality standards - and brand perception - from slipping even as they storm ahead with capacity expansion plans.

At GM, the mandate to ensure that Buick, Chevy and Cadillac quality standards are not compromised by booming growth comes right from Chief Executive Ed Whitacre, who has asked to be briefed on safeguards the US automaker is putting into place, executives say.

"We are incredibly focused on the quality story," GM's president for international operations, Tim Lee, said in Beijing this week. "I have no fear that we will face it. We've seen the other side of the equation and our brands are too important."

Ford, on track to increase its dealer network in China by 25% this year, is also focused on ensuring that it does not chase growth for the sake of growth.

"The quality of the dealership is more important to me than the number," said Ford's global marketing chief, Jim Farley. "I want to make sure that we are getting the right partner for the next 50 years."

Chinese automakers, for their part, are aware of the task still ahead of them.

With Beijing keen to weed out the weak and be left with only a handful of strong, globally competitive homegrown players, Chinese automakers are scrambling to raise their game, including by showing they can export and set up shop overseas.

"We still have a gap to fill with international brands," Jianghuai Automobile Group President An Jin told an industry conference in Beijing this week.

"This will be the driving force for us. We need to enhance our brand and quality."

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