Reuters automotive reports Fang Yan and Kazunori Takada have dished out the dirt on Chery and their loss making ways. The two reporters discovered that Chery is essentially being kept alive by government subsidies from 2009 to 2011 when tax on sub 1.6L displacement vehicles was lowered from 10% to 5% and then later raised to 7.5% before reverting back to 10%.
Research by state-owned China Lianhe Credit Rating Co shows that Chery would have lost money in each of the past three years were it not for government subsidies. The losses for 2009 and 2010 are noteworthy because auto sales soared then, thanks to Beijing’s incentive programs.
The company recorded profit of 66 million yuan ($10.59 million) in 2009 and 240 million yuan in 2010, according to the report from Beijing-based Lianhe. That means it would have been deep in the red if it were not for the 633 million yuan and 1.12 billion yuan in subsidies it received in those two years.
Chery spokesman Huang Huaqiong said the company has made substantial investment in technology and is now adjusting its brand strategy, and he expressed confidence that performance would improve.
Chery’s QQ range is the company’s bread and butter. Although the models have been on the market for over ten years with no substantial changes the QQ3 and QQ6 models often see sales of over 10,000 units per month, easily making it one of the best selling cars in the Chery range. Other models, such as the Chery A3 initially gained large sales volumes of around 10,000 units in the first year but sales quickly fell back once the competition introduced their own sedan and hatchback models, so far this year the A3 has managed sales of just over 16,000 units.
Ipsos’s Ye said Chery could have remained a front runner if it had focused on building up its low-cost brand QQ, its first hit model, which has been labeled a copy of General Motors Co’s Chevy Spark.
Instead, it rolled out dozens of new models with little differentiation and even created two additional brands, Riich and Rely, which never caught on.
Although I’ve only taken October as an example, its easy to see that Geely’s dual brand strategy is working quite well. In October Chery’s best selling car series was the QQ, with 12,290 cars sold and 112,550 units sold so far this year with prices ranging from 26,800RMB to 52,8000RMB, Geely’s Emgrand EC7 sold 16,481 (113,971 this year), with prices ranging from just under 70,000RMB to 100,000RMB, Geely are likely to be pulling in more profit on higher priced vehicles, a situation which might have been considered impossible for Geely just some 5 years ago where they were famed for their low cost cars. Oddly, I could not find any sales statistics for Chery’s Reely brand which was focusing on MPV and SUV sales.
In September we brought up Chery’s GM Moment when Chery realized that too many brands were bringing the company down. Chery’s PR spokesman was right when he pointed out that Chery had made substantial investments in Chery’s ATECO engine range which has small displacement energy efficient turbo units and larger V6 engines as well as diesel/duel fuel models, something that its rivals are only catching up with, Geely has yet to introduce a production turbo engine but Great Wall have with their small displacement 1.5T and their 2.5TDI and 2.0TDI offerings.
What will it take for Chery to catch up? A quick visit to the Chery dealership is all that it takes to see that Chery is overlapping itself with competing products that haven’t been updated in a few years, the Chery A1, and QQ range are all in competition with each other, as are the Fulwin/Cowin range which again competes with the A3 models, only the current Chery Tiggo SUV stands aloneÂ – but again, that is in dire need of a new generation of car to make it competitive. Chery needs to strip its product range, and reshape the Riich range into something more manageable. The Chery chairman might have wanted so many ‘children’ to be successful, but Chery’s time on state benefits is running out, perhaps its time to kill the kids?