Geely Joins Chery on the Export Road 吉利加入奇瑞的出口车行列

By newsdoug on March 28, 2012

Geely tries fast road to exports Faced with a slowing home market and stiff competition from foreign-backed rivals, China’s big domestic auto brands are increasingly looking to developing markets to revive their flagging sales, with Geely (HKEx: 175) the latest to jump on the export bandwagon. A company executive says Geely, which made headlines a couple of years ago with its purchase of Volvo, aims to overtake domestic rival Chery in the next 2 years to become China’s leading car exporter. (English article) Geely is joining Chery in the drive to overseas markets as growth in China’s domestic auto market, the world’s largest, has slowed dramatically over the last year after Beijing retired many buying incentives designed to boost domestic consumption during the global financial crisis. As the market has slowed, China’s “big 3” domestic nameplates, Geely, Chery and BYD (HKEx: 1211), all of which specialize in lower end cars, have lost steady share to other domestic rivals with big-name foreign joint venture partners. Those rivals are turning up the heat even more with a recent series of new initiatives to enter the lower end of the market, which traditionally was dominated by the domestic brands. (previous post) Under its aggressive export expansion plan, Geely will open factories this year in Belarus and Uruguay, adjacent to 2 of the world’s 5 BRICS countries, namely Russia and Brazil. Chery, which has opened one plant in Venezuela and is building another in Brazil, was China’s export leader last year with some 160,000 cars shipped abroad, and has seen strong overseas sales in the first 2 months of this year as well. From my perspective, this overseas strategy looks like a smart move as China is arguably one of the world’s most advanced countries in terms of designing and building reasonably high-quality cars costing less than $10,000 each — a combination preferred by many developing market white collar urbanites who often can’t afford the pricier models offered by big-name foreign companies like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG). GM has recently discovered the lower end of the market can be quite lucrative, developing its Chevy Sail specifically for China 2 years ago. Since its release, the Sail has become one of the nation’s best selling models, providing further headaches for the domestic nameplates. If they are smart, which appears to be the case, Chery, Geely, BYD and other export-minded domestic automakers will accelerate their overseas plans, as they should have a 2-3 year head start over the big foreign names. If they hesitate, they could easily run into the same foreign competitors in overseas markets that are already rapidly eroding their profits at home.

Bottom line: Geely’s acceleration of its export drive looks like a smart move, allowing it to leverage its expertise in low-end cars to quickly grow in other developing markets.

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