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Honda and its joint-venture partner GAC discreetly established a few years ago a new brand owned by the JV manufacturer – LiNian - and the market has recently seen resurgence of this practice: now GM/SAIC/Wuling as well as Dongfeng Nissan also operate their own brands, BaoJun and QiChen. And as we understand, VW and PSA are each considering the creation of a new make with one of their Chinese partners, too, in order to take on the mainland’s booming low-end car market in the inland provinces.
You can look at it from different angles, but this new development in the Chinese passenger vehicle market seems to raise several questions, and arguably even exhibits some contradictions. In a market that is already crowded with car makes, and where consolidation is a real need, the establishment of new brands appears to be counterproductive. One may even find some irony in the fact that the very GM which not long ago phased out its Saturn and Hummer brands is now one of the protagonists in the creation of new brands in China.
In a certain sense, the emergence of JV brands has something in common with the creation of premium brands a la Lexus, Acura, or Infinity years back, with obviously opposite objectives – what the core brand cannot achieve should be accomplished with a specifically designed marque. While the sales of luxury cars requires high end brand DNA, the conquest of the low-end market calls for some basic and simple brand ingredients. While premium prices with high margins and impeccable quality are the focus in luxury sales, cheapness at acceptable quality appears to be the dogma at the other end of the scale. But how cheap a JV branded car can get? A sub-compact class Chevrolet Sail is already sold below 60K RMB, and a compact class VW Jetta comes below 80K RMB. Taking on the Chinese domestic manufacturers, as the alleged objective of these JV brands is, turns the automotive world somehow upside down. Weren’t the Chinese brands the ones to trade-up their vehicles to ensure competitiveness and sustainable success in a quickly maturing Chinese car market with continuously more demanding consumers?
JV brands, even if positioned as locally originated, are supposed to build on the support from the international partners for their marketing proposition: at the same (low) price as Chinese domestic brands being technologically superior and, thus, the logical choice for purchase. It will be difficult, though (as it is costly and takes time), to replicate the widespread distribution network coverage of domestic brands particularly in lower tier- and more rural regions, which in turn, is a strong purchase trigger for them.
The biggest paradox is the likely political maneuvering behind the scenes of these JV brand creations as a substitution of market forces. One may believe in free market economic developments in the world’s biggest auto market or not, the developments in the mainland continue to be unpredictable and able to surprise. That’s just China!
About the author:
Klaus Paur, Gasgoo's columnist, is Managing Director Automotive for Greater China and Korea at Synovate Motoresearch. He has more than 20 years of experience in marketing and market research, 15 of which have been spent specialising in the automotive industry. Since 2003, Klaus has been living and working in China.