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Jing Daily was started in mid-2009 with the purpose of gathering the latest news about crucial developments and current trends in China’s luxury, business, arts, and cultural markets. Over the past decade, China has emerged as a global economic power. With a middle class now roughly equivalent... More
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  • China Auto News: Geely, Maybach, Volkswagen
     A Roundup Of Some Of This Week’s Top China Auto Market Stories

    Although the week is only halfway over, there’s been a great deal of action in the Chinese auto market.

    BYD Eyeing Maybach?
    A Chinese Maybach?A Chinese Maybach?

    Speculation — quickly denied — this week about the future of Daimler’s imperiled ultra-luxury marque Maybach. From the New York Times:

    The Guangzhou Daily and other local media said Monday that Chinese car and battery maker BYD was weighing the possibility of taking over Maybach from Daimler and that it would make a move once the brand was put up for sale, Reuters said.

    “Maybach is an important part of Daimler’s product portfolio. There is no other decision,” a Daimler spokesman told Reuters.

    Paul Lin, a spokesman at BYD in the southern Chinese boomtown of Shenzhen, where the firm is based, also denied the reports, the news service said. “It’s not true, it’s market speculation. We got calls from the media and we have checked with Chairman Wang,” Lin said, referring to Wang Chuanfu, chairman of BYD. Asked whether BYD had had any initial contact with Daimler on buying Maybach, he replied: “No.”

    The Guangzhou Daily article mentioned by the New York Times and Reuters includes some interesting commentary on the possibility of BYD acquiring Maybach, even though both sides deny that such an acquisition will ever take place and Daimler CEO Dieter Zetsche has stated that his company plans to close down the marque within the next two years. If nothing else, these observations include some valuable insight into the mindset of Chinese auto industry insiders about how to boost the reputation and visibility of young Chinese auto brands in the global marketplace (translation by Jing Daily team):

    Experts optimistic about BYD acquiring Maybach

    One has been in the young Chinese auto market for less than 10 years, with main vehicle prices less than 100,000 RMB ($14,650), the other has nearly 100 years of history, standing at the summit of the world’s auto brands among Europe’s most opulent luxury automakers.

    So what’s the likelihood of BYD successfully acquiring Maybach? Even if the acquisition goes through, can a young brand like BYD actually operate this brand well? Against all odds, quite a few Chinese auto experts are optimistic about BYD’s prospects for acquiring and successfully managing Maybach.

    On March 23, seasoned auto industry analyst Han Song said in an interview, “Personally, I feel very optimistic about the idea of BYD acquiring Maybach. BYD has several advantages that would ensure that it could successfully purchase and manage a brand like Maybach. First, BYD is an international company with experience in international operations; Second, BYD has a good image overseas, Warren Buffett has invested in it, and its cooperation with Daimler on new energy vehicles has further boosted its image internationally; Third, BYD has its own core technology, which could help Maybach’s future operations; and finally, BYD and Daimler’s cooperative relationship indicates that the likelihood of BYD acquiring Maybach is very high.”

    A story to keep an eye on, but worth taking with a considerable grain of salt.


    Geely Finalizes Deal To Purchase Volvo
    Geely-owned Volvo

    Geely-owned Volvo

    Zhejiang-based Geely’s long-delayed takeover of the loss-making Swedish carmaker was finalized this week, as Geely agreed to pay $1.8 billion to purchase the company from Ford Motor Co. All told, Geely will spend about $2.7 billion for the acquisition — the original price plus $900 million in working capital. From Channel News Asia:

    Volvo will give Geely the “perfect platform” to improve its own product line and enhance its image in China, where it has struggled to make an impact, said Jerry Huang, a Shanghai-based analyst with research firm CSM Worldwide.

    Geely has become one of China’s largest private carmakers since launching its auto manufacturing business in 1997. It has an annual production capacity of 300,000 cars, but has sold less than 200,000 units abroad since 1997.

    “There is quite a big gap between Geely’s product line and brand awareness and those of Volvo’s,” said Huang.

    “Geely gets a platform to learn and gain experience in the industry.”

    As Jing Daily wrote around the time of Volvo and Geely’s initial deal announcement, a Chinese-owned Volvo could see the long-suffering Swedish marque turn its fortunes around almost overnight. Since Beijing requires that at least 50% of government vehicles must be Chinese brands, Volvo will exist in a sort of gray area that could very well propel it past the ubiquitous black Audi A6s long preferred by government officials. Though it will take some time to see whether Volvo’s biggest challenge in coming years will be to sell future “Made in China” Volvos outside of China or to foreign-brand-mad car buyers inside the country, the China market may just save the brand.


    VW To Target Chinese Millionaires With $88,000 Phaeton Revamp
    VW

    VW's new Phaeton will be unveiled next month

    Volkswagen will unveil its new $88,000 Phaeton at next month’s Beijing Auto Show, sources tell BusinessWeek:

    VW, which withdrew the Phaeton from the U.S. in 2006 after a sales flop, is designing new front and rear sections, an interior upgrade and a wider selection of engines for the car, said the people, who declined to be identified because the revisions aren’t public. The model will be presented on April 23, before the start of the Beijing event, instead of in the second half as previously planned, they said.

    According to Stefan Bratzel, director of the Center of Automotive at the University of Applied Sciences in Bergisch Gladbach, Germany, “Success in China is absolutely crucial for Volkswagen’s expansion goals. Selecting China as the venue for the launch of the new Phaeton proves VW’s commitment to this vast market.”

    By launching the updated Phaeton in China, VW will likely get a great deal of free press (and goodwill) there, akin to that seen by Porsche last year when it launched its Panamera Turbo at the Shanghai Auto Show. But will Chinese millionaires be interested in throwing down nearly $100,000 for a Volkswagen? Clearly, wealthy Americans weren’t. But we’ll have to wait and see how it pans out in China. After all, China has a way of injecting new life into moribund auto marques and models. (Roewe and MG immediately spring to mind.)

    Tags: DDAIF, BYDDF, VLKAF
    Apr 01 3:02 PM | Link | Comment!
  • Apple’s China Push: Why It’s Easier Said Than Done
    Sales Of iPods, Lower-Priced Items Should Stay High, But Computers, Possibly iPads May Disappoint

    (Article also appears at Jing Daily)
    Apple

     

    Recently, Apple announced that the company plans to open 25 new stores in mainland China over the next two years, as it focuses on building its minuscule market share in one of the world’s most important tech markets. Although computer sales doubled between Q1 2009 and Q1 2010 and 200,000 iPhones have been sold in China since last October according to a Forbes article, Apple enjoys neither the widespread popularity nor market presence of global competitors like Dell or Toshiba or domestic competitors like Lenovo or Founder in China.

    While much of this boils down to the fact that Apple has only one official retail location in China at the moment (in Beijing), there are other important reasons why wide-eyed optimism over Apple’s prospects in China are somewhat premature.

    In the past few weeks, many articles have billed Apple’s push into the China market as a potential goldmine for the company, predicting that computers and new products like the iPad will sell like hotcakes — or, perhaps more appropriately, shaobing? — throughout the mainland. While some predictions — such as the fact that the reasonably priced iPad could realistically become “the first Apple computer many Chinese can afford” — are somewhat valid –  there are far more reasons to be cautiously optimistic about Apple’s prospects in China rather than expecting too much in the short- to medium-term.

    Technical Difficulties

    A common gripe that many Chinese users have with Apple computers is incompatibility issues with a number of Chinese websites, such as the wildly popular e-commerce platform Taobao (though problems with Taobao’s online payment system Alipay were addressed last year), and popular Windows-centric software like the chat program QQ Whirlwind and video program PPS. For most day-to-day Internet users in China — who tend to favor online gaming and chatting over all else — this is a deal-breaker.

    Price

    This has been mentioned elsewhere, but it remains a fact that Apple’s price-point remains out of the reach of most of the college-age or younger white-collar professionals in China who are the company’s bread and butter in major markets. This means that Apple computers have been — and continues to remain — very much niche products, popular mainly among a relatively small proportion of individuals working mostly in the creative industries.

    For a college student or twenty-something in China, the choice between an RMB 8,000 MacBook and a basic Lenovo laptop for about half that price (or a Shanzhai PC for even less) is generally a foregone conclusion, especially when the aforementioned software issues are taken into consideration. As long as price comes first when Chinese buyers look for a computer, it doesn’t matter how many retail locations Apple opens in China.

    Chinese consumers remain, on the whole, extremely pragmatic shoppers. Unless Apple targets only wealthier consumers who value flash appeal over functionality — which they very well might do — computer sales will likely remain sluggish for years to come.

    “Made in China”

    Another issue that shouldn’t be ignored is the company’s “Made in China” tag. Apple remains — in China, certainly — a luxury brand, and as many luxury brands have found out already, many in China (even if they have the money) still equate “Made in China” with “Do Not Buy.” While some articles downplay this issue, noting that Apple is more than a luxury brand (since luxury brands can be easily counterfeited), it’s a “premium brand” — a valid point — we, and many others, feel that the “Made in China” distinction is a disadvantage for the company, again, at least in the short- to medium-term.

    iPad

    It’s still a bit early to speculate on the potential success of the iPad in China, but it’s safe to assume that it’s popularity will remain heavily dependent at its final price in the China market. Details about the iPad’s China price are still relatively scarce, with netizens there expecting it to cost no less than RMB5000, or US$732, still far too expensive for most urban Chinese. Though the iPad will undoubtedly find an audience in China, rate of adoption will likely remain anemic, at least for a while, unless there is some kind of subsidy program with China Unicom or China Mobile. All speculation, but everyone’s speculating at this point.

    They’ve Got Some Serious Convincing To Do

    Although cheaper offerings like iPods and possibly even the upcoming iPad may prove reliable sources of revenue, Apple undoubtedly wants more Chinese to trade up and shell out for their high-end desktops and laptops. As a result, the company will have to work extremely diligently to convince Chinese consumers that: 1.) It’s worth the money, 2.) It will work on your favorite sites and games, and 3.) the quality is superior to domestic brands and/or Windows PCs. No small task.



    Disclosure: No positions
    Mar 03 11:53 AM | Link | Comment!
  • Hermès To Back New Brand In China: Will It Turn Off Chinese Luxury Buyers?
    “Shang Xia” (”Topsy Turvy”) To Launch In China In Spring 2010

    Women’s Wear Daily reported last week that French luxury house Hermes plans to support the launch of a new luxury handbag brand, Shang Xia, in China this coming spring. According to reports confirmed by French newspaper La Tribune, Hermes’ involvement in the launch of Shang Xia wil mark the first time Hermes has built a brand from the ground up, and the company’s products will be designed, manufactured and sold entirely in China.

    All of this seems to make sense, since China is now the world’s second-largest luxury market and the world’s most populous country. But is this concept doomed to fail?

    While this new brand is obviously a way for Hermes to experiment with “affordable luxury” in the China market, it is likely that many China luxury watchers will be less than enthused about Shang Xia. As a recent survey by the Pao Principle, a global business strategy consulting firm, found, Chinese luxury consumers don’t want to feel that China is the ”dumping ground” for cheaper or excess inventory.

    If they’re going to invest in luxury goods, they want them to be expensive because they’re obsessed with exclusivity. As the study found, mainland Chinese luxury buyers value two things over all else: quality and selection.  Aside from the lowest end of luxury buyer, the target consumer wants to buy items that are shown in New York, Tokyo and Paris brand boutiques — but not in Hong Kong — rather than a mainland-only sub-brand that feels cheap in comparison to the “real thing.”

    While it’s far too early to conclude, sight unseen, that Shang Xia will be of subpar design or quality — it very well might be of exceptional quality and appeal to a wide swathe of Chinese luxury buyers — it brings up critical strategic questions for foreign luxury brands: Is it better to pursue only a high-price, high-quality, exclusive tactic in the China market and limit your buyers to an exclusive core? Or is it better to focus on your high-range line only in Hong Kong, where most wealthy mainland Chinese do the bulk of their luxury shopping, while considering a supplementary sub-brand strategy in the mainland? Does involvement in mainland-only sub-brands dilute top tier brands?

    Tags: china, luxury, hermes
    Dec 28 11:09 AM | Link | Comment!
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