Global brands take more control of China sales

Yang Jian is managing editor of Automotive News China.Yang Jian is managing editor of Automotive News China.
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SHANGHAI -- When global automakers entered China, they had no idea how to sell their products here. To play it safe, they let managers from their Chinese joint venture partners oversee sales but over the years, global automakers have learned a lot about Chinese consumers.

Several years ago, they started to take control of sales, the only area in which they gave their Chinese partners a leading role. Lately, this trend has accelerated. A good example is Daimler, which has struggled to keep pace in China with BMW and Audi. Over the past three months, Daimler raised its stake in both of its Chinese joint-venture sales operations.

The German company now holds a 75 percent stake in Mercedes-Benz China, a partnership with Hong Kong car distributor Lei Shing Hong Ltd. that sells imported vehicles. Daimler also gained a controlling 51 percent share of Beijing Benz Automotive Co., a partnership with Beijing Automotive Industry Holding Corp. that sells cars made in China. Other foreign luxury brands have taken similar action. Over the past three years, Volvo, Porsche, Ferrari, Bentley, Jaguar and Land Rover set up their own wholesale operations in China.

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Why are they so eager to establish control? It's simple: China has become their biggest and most important market, says John Zeng, Asia Pacific director of LMC Automotive. For most global automakers, China is one of their top three markets worldwide, and sales continue to grow 5 percent to 10 percent a year. "By controlling sales, global brands can expand their footprints in this market as fast as they like," Zeng said.

Earnings meltdown

Zeng offers a second reason why global brands want to control sales operations: profits. China generates more profits than any other luxury market, and that trend seems likely to accelerate. This month, McKinsey & Co. predicted that China's premium car sales would overtake those of the United States by 2016 and those of western Europe by 2020.

In such a lucrative market, the last thing a global automaker wants is a price war among its dealers. Yet that's what Lei Shing Hong triggered last spring when the distributor slashed prices of some imported Mercedes models as much as 40 percent.

Dealerships that sold locally built Mercedes vehicles soon followed suit to retain their customers. The result? An earnings meltdown for Daimler.

Later this year, we'll see more global brands take steps to gain control of their Chinese sales operations.

According to Chinese media, Renault wants to put its executives in charge of a sales joint venture that it plans to form with Dongfeng Motor Corp.

And we should keep an eye on General Motors, too. Last year, the U.S. automaker reluctantly gave SAIC Motor Corp. a 51 percent share of their sales joint venture in return for a 50-50 share of their production partnership, Shanghai GM.

It would come as no surprise if the U.S. auto giant finds a way to regain control of its sales company. Will these global automakers succeed? I bet they can.

Global automakers own the intellectual property rights for the vehicles they build in China. They also have the final say about new models to be introduced in this market. This gives them powerful leverage to gain control of sales in the world's largest car market.

You can reach Yang Jian at yangjian@autonewschina.com.

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