BEIJING: Domestic automakers in China are lagging behind their overseas rivals in terms of consumer perceptions and sales, a trend that executives do not expect to change in the immediate future.
According to the Chinese Association of Automobile Manufacturers, the market share held by indigenous firms fell from 49.2% in January 2010 to just 37% in July 2012. Foreign and joint venture brands thus control 63% of the passenger vehicle market.
"China's indigenous cars are lowest on the food chain," Liu Yu, deputy sales chief of BAIC Motor Corp, told Bloomberg. "Our margins are next to nothing ... The difficulties are way more than I previously imagined and we are struggling to find solutions."
Long-standing legislation requiring foreign companies to form joint ventures with domestic manufacturers has therefore, it seems, failed in its objective to make Chinese brands competitive.
"We have been trying to exchange market access for technology, but we have barely gotten hold of any key technologies in the past 30 years," said Liao Xionghui, vice president of Lifan Industry Group. "China's auto industry is still in its infancy. How can a two-year-old beat someone in his thirties?"
In order to gain a share of the huge new vehicle market, which delivered sales of over 18m units in 2011, Chinese automakers may need to rapidly improve product quality and perceptions.
"There is a belief at this point in time that international brands have more technology, and in some cases better craftsmanship," said Joe Hinrichs, president of Ford's Asia Pacific and Africa region.
Companies such as Great Wall, the country's biggest maker of sport-utility vehicles, are hiring foreign designers in an attempt to boost confidence.
However, JD Power & Associates' recent Dependability Study noted that local brands reported 75% more problems than the foreign alternatives.
"It is not just one product that changes perception but it is many products over two to three model cycles, five to seven years," said Charles Mills, a vice president at JD Power, the Consultancy. "Even if they come up with a beautiful skin of a vehicle, the people still have to believe the vehicle is going to deliver as good an experience as something else."
Local automakers actually fell short of government targets aiming to have two or three local companies with annual sales of more than 2m units last year, and four or five with sales in excess of 1m.
As a result, the Ministry of Industry and Information Technology has instituted a consolidation programme that will revoke production permits for firms failing to make 1,000 passenger vehicles annually for two consecutive years.
More positively, exports of Chinese autos are predicted to jump by 50% in 2012, with Russia being the biggest destination, and Brazil posting the fastest growth.
Data sourced from Bloomberg; additional content by Warc staff