After cracking ASEAN code, SAIC gears up for India challenge

Updated on: Mar 22, 2019

Brand muscle: SAIC has a wide array of products that can be intermixed to meet the specific needs of a market. A file photo (above) of a SAIC GM Wuling factory in China | Photo Credit: Norihiko Shirouzu

Chinese carmaker makes presence felt in Thailand and Indonesia but will face new dynamics in India

Ammar Master & Titikorn Lertsirilungsun

Alibaba Group, Huawei Technologies and Tencent Holdings (through WeChat) are some of the well-known Chinese companies that are racing competitively on the world stage.

In the automotive landscape, Chinese vehicle makers have also been upping their game. Excluding their home market of China, global passenger vehicle (PV) sales of these automakers have climbed rapidly in the past two years — from 2.81 lakh units in 2016 to 4.41 lakh units in 2018. These numbers exclude Volvo Cars, which is owned by the Geely Group.

SAIC, the largest Chinese automotive company (by light vehicle sales volume), in particular, is slowly moving towards realising its global ambitions since the acquisition of Morris Garages (MG) in 2011. Its global PV sales, barring China, stood at 74,000 units in 2018, up from 17,000 units in 2016, with a majority of the volumes coming from MG.

SAIC’s Asia-Pacific sans China strategy has thus far been concentrated in the ASEAN region, particularly with a focus on Thailand and Indonesia. But it will soon start its innings in India through MG.

What is interesting is that the automaker has entered both the largely Japanese-dominated ASEAN markets with unknown brands in the form of MG in Thailand and Wuling in Indonesia. Although it is still early days, both MG and Wuling have received good market acceptance because of a well-thought approach.

To begin with, SAIC introduced these two brands with the right products and at competitive prices. In Thailand, MG first launched the MG3 sub-compact car to penetrate the biggest PV segment in the country. This was soon followed by the introduction of the GS and ZS models to reap the benefits of the growing SUV boom.

Wuling similarly jumped straight into the MPV market, the largest in Indonesia, with the Confero and the Cortez, to battle against the venerable Toyota Avanza as well as the Innova.

SAIC also rightly decided to build these vehicles locally to pare down costs, and benefited from generous tax incentives offered in Thailand and Indonesia to promote localisation. The decision also meant that MG and Wuling avoided paying hefty duties for fully-built import vehicles, which allowed for competitive pricing.

The strategy has paid off handsomely, especially in Thailand. After initially assembling vehicles through a lease property at an investment cost of THB (Thai Baht) 9 billion, MG vehicles are today manufactured at its fully-owned unit while another facility is also being planned for the future. The total investment outlay for the two units is reported to be to the tune of THB 30-40 billion.

On the retail front, both MG and Wuling are offering longer warranty periods than their rivals to quickly attract buyers and allay any perceived fears over quality. While automakers in Thailand and Indonesia typically offer warranty periods of three years or 1,00,000 km (whichever comes first), MG Thailand has extended its warranty period to four years.

Wuling in Indonesia, while offering the same warranty terms as its competitors, offers a longer period of five years for the engine and key transmission components.

Big charge from electrification

Going forward, SAIC is also likely to benefit from policies promoting vehicle electrification in Thailand and Indonesia since it has EV (electric vehicle) technology in its arsenal. MG Thailand has already applied for PHEV (plug-in hybrid electric vehicle) and BEV (battery electric vehicle) incentive programmes, and has received approval for its PHEV proposal. Likewise, we expect Wuling to join Indonesia’s upcoming low carbon emission vehicle (LCEV) programme.

Another big advantage SAIC has over regional rivals is its wide array of brand names and products, which can be intermixed to meet the specific needs of a market based on brand perceptions and segment requirements. For example, MG Thailand will introduce a re-badged Maxus T60 as a new pick-up truck in Thailand.

Similarly, the Baojun 530 is sold as the Wuling Almaz in Indonesia. The same vehicle will soon arrive as the MG Hector to begin SAIC’s foray in India, which will be the Chinese automaker’s next phase of growth in Asia-Pacific.

The approach for India is in line with SAIC’s overall strategy for this part of the world with MG entering the fast-growing SUV market. The company also plans to launch the MG E ZS, an electric version of the ZS, but likely to be a low-volume model to showcase the brand’s EV technology.

We also anticipate MG to bring a localised and re-badged version of the Baojun 510 subcompact SUV, possibly by around 2021, to complement the Hector in the market.

While MG’s initial plans to compete in the SUV segment is a sound policy, the company cannot ignore India’s bread-and-butter sub-compact car market. That said, we currently do not show any MG sub-compact cars in our forecast since details are not available at this point in time. If its tactics in ASEAN are to be used as guideposts, we can expect MG to match or offer better warranty terms than competitors in India.

Again, the aim of such a line of attack would be to dispense any perceived quality concerns of a brand that is managed by a Chinese company, notwithstanding the British heritage of MG that the company would undoubtedly promote.

To be sure, SAIC expects big volumes from India. After purchasing General Motors’ defunct Halol facility and refurbishing it at a cost of ₹2,000 crore, it is earmarking another ₹3,000 crore over six years towards further refurbishment of the unit as well as for future capacity expansion. This may include a new plant though these are early days yet. However, there is no mistaking the intent in making an impact in the Indian market. This will not be a walk in the park considering that there are established players like Suzuki and Hyundai, with Kia now set to launch its own SUV in the second half of the calendar.

Further, it will be interesting to see how Indian customers perceive a Chinese brand. Sure, the reception has been overwhelming in the cellphone space but as an industry expert points out, electronics is a different ballgame from hardcore manufacturing. Brand perception will, therefore, be a challenge, especially when Chinese brands are synonymous with low-cost engineering.

SAIC will have its work cut out here but the company has done enough legwork, especially some years ago, when it had teamed up with General Motors to jointly explore products for India. Even though nothing much came out of this, the Chinese automaker will have done enough market research to understand what it takes to succeed in India, even if this means a long wait. SAIC’s increased activity in the ASEAN region and its upcoming entry in India may just be the beginning of a greater Chinese onslaught in Asia-Pacific sans China. It is also likely that India will play a far bigger role as an export hub for other emerging markets.

Geely, the other Chinese brand to watch out for

While SAIC is China’s largest player, it is Geely that has been making news in recent times. After the Volvo Cars acquisition in 2010, Geely picked up stakes in Daimler AG and Volvo AG, which could translate into some interesting dynamics in the commercial vehicle space.

The Chinese automotive group has aggressively pursued its global ambitions through an inorganic route. Its sales, excluding China and Volvo, slipped from 21,000 units in 2016 to 17,000 units in 2018. Add in sales of Volvo, though, and the total shoots up to 4.59 lakh units in 2016 and 5.25 lakh units in 2018.

Clearly, Geely has benefited from the long-established reputation and presence of the Volvo brand in global markets. The same strategy is being applied to make further inroads in the ASEAN region. In 2017, Geely bought DRB-Hicom’s controlling stake in Lotus Cars and also purchased 49.9 per cent of Malaysia’s national carmaker Proton from the conglomerate. This was a smart move since Proton retained its national car status as it is still majority owned by Malaysian DRB-Hicom.

However, Geely will dictate Proton’s company policy and its future direction. The first Geely-Proton model was the Proton X70 SUV, or a re-badged Geely Boyue, in December 2018 as a fully imported model. This vehicle is expected to be locally built from the third quarter of 2019. More vehicles from Geely are likely to be badged as Protons to penetrate first the Malaysian market and then target the wider ASEAN region in the coming years.

To be sure, Geely aims to become a strong competitor in the region. When it will enter India, though, remains a million-dollar question though one can safely assume that it will be tracking SAIC’s progress with great interest.

Master is Senior Manager and Lertsirirungsun, ASEAN Manager, LMC Automotive, Bangkok

Published on March 21, 2019
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