How to overtake in the slow lane

Growth in China’s auto market may be slowing – but there’s still opportunity for domestic contenders to make ground on their rivals.

Many say it was bound to happen. Annual double-digit growth in China’s auto market has now been officially interrupted, with growth halving to 9.8% between 2013 and 2014. The reasons are well understood: strict official limits on new car sales, an economic slowdown (exaggerated in the media at times but weighing on consumer confidence nonetheless), and oversupply leading to disillusioned dealer networks. However, in times like these, it’s vital for manufacturers to realise that the market doesn’t have to slow down at the same rate for everybody. This is a time when experienced brands know they can gain share by adapting their approach to suit local needs, continuing to invest in the right innovative features – and targeting them at the right consumers. And that’s a lesson that domestic brands must be prepared to learn quickly.

Over the last three to four years, domestic manufacturers have been losing market share to multi-national challengers with their established global brands and increasingly localised approach to China. Yet the success of three homegrown contenders over the last year proves that this doesn't have to be the case. As auto buyers scrutinise their purchases more carefully, perfectly pitched innovation can offset big overseas reputations, and provide local manufacturers with the chance to move ahead –especially when they identify the right vehicle segments to focus their innovation around.

For ChangAn, the first of these three domestic success stories, that segment was the saloon, and the innovation was the electronic stability control added to its Eado model. This brings a significant safety advantage to drivers and passengers. It’s a feature rarely seen in cars of this class, but which Chinese families certainly value. The result? The majority of the rapid growth achieved by ChangAn in the last year can be attributed to Eado.

For Dongfeng, the key opportunity segment was the multi-purpose vehicle (MPV). The brand saw the lack of traditional sales for these vehicles for what it is: a huge growth opportunity positioned between vans and more expensive SUVs. The facelift of its Jingyi model, complete with huge, SUV-style front headlights and innovative panoramic roof, persuaded consumers to take another look at MPVs.

Another interesting development is that Chinese brands are joining Western manufacturers, Google and Apple in the connected cars race. BAIC will display an electric concept car full of connectivity features (co-developed with Leshi Internet Information & Technology Co., known for its web connected televisions) at the Shanghai motor show next week. SAIC and Alibaba are investing millions in the connected car space and plan to launch an attractive alternative for automotive trend-setters before the end of 2016. Plus Chery will bring the shared electric car concept to life by partnering with technology players Yongche, iVoka, and Pateo.

Before long this new business model will also expand beyond traditional car manufacturers. Foxconn and Tencent have formed a joint venture with premium Auto dealer group Harmony Auto to co-develop connected electric cars. Although it is not clear yet whether this alliance will eventually produce cars independently or ask an OEM to manufacture them, what is clear is that this will further contribute to a shift of the connected car focus from US to China…

Innovative features have an obvious role to play in inviting consumers to reconsider domestic brands – but they are not the only tool in the manufacturer’s box. In the case of both Dongfeng and Haval, innovative financing models had a role to play as well. Haval has developed affordable and attractive SUVs to enable it to play effectively in a key growth segment – and its innovative five-year warranty (as opposed to the segment’s usual three) has made a major contribution to its strong growth over the past year.

Giving consumers new packages and benefits to think about can give domestic brands a vital competitive advantage in a slowing market. At a time when the margins of dealerships are coming under ever-greater pressure, finding new ways for dealers to make money will also secure competitive advantage. As the new car market slows, car rentals, second-hand sales and aftersales service can all keep networks strong. Doing so creates important new sources of revenue, but it also ensures that a brand’s vehicles remain visible and accessible to as many potential buyers as possible.

A slowing market can often shake things up more effectively than a rapidly expanding one, and domestic auto brands have an unprecedented opportunity to start overturning one of the big advantages that their global counterparts enjoy. They can’t match their rivals’ long brand heritage, but by innovating in focused, productive ways, and increasing their footprint in the market, they can counter it through engineering popularity. Smartphone contenders such as Xiaomi, Lenovo and Huawei, not to mention smaller brands like ZTE and Vivo, have built a reputation to compete with Apple and Samsung on the basis of innovation, performance and popularity. Now, domestic auto brands have the chance to do the same.