I’m recently back from the CADA Study Tour in China, so I thought I’d share some initial thoughts.
This won’t be a deep dive. Look for that to follow in upcoming issues. It certainly warrants a deeper dive and far more pages than a single Publisher’s Note provides. In terms of product. In terms of customer experience and customer purchasing habits. And in terms of what is and is not working in the Chinese market.
To set the table, let’s review what we did: CADA, working with China-based partner Greenkern, put together a jammed 5-day agenda that gave us an immersive view of the Chinese automotive market, and its retail market beyond automotive:
- We visited a wide range of retailers, both auto and non-auto, to see innovation in retailing;
- We visited NIO and VW plants to compare a Chinese start-up with a legacy manufacturer;
- Chinese industry leaders and local experts helped us really understand the key forces at work, and;
- We spent some time with Australian dealers and the AADA (who were in China on a similar study tour) to understand the impact of the Chinese OEMs on a market with many similarities to ours.
Who are “we”? Leading Canadian dealers from across the country. The names are familiar to you, but I won’t list them here. Bruce Rosen, CADA Executive Director of Industry Relations and I were the only ones who don’t sell cars for a living.
By the way, thanks to the whole gang for being such amazing travel partners. What a great bunch to spend time with. But back to some highlights.
In terms of OEMs, the picture is almost dizzying. There are about 100 OEMs in China. This number is dropping and continuing to drop as smaller manufacturers are being phased out or acquired.
We saw the full range of products, from entry level to ultra luxury, and there is innovation throughout.
This number has many implications. For one thing, the market is hyper-competitive. No-one is making money. Not the OEMs. Not the dealers. We met with Lei Shing Hong Auto Group, one of the world’s largest premium auto groups selling 25,000 cars a year in China and 15,000 in Taiwan. They described the situation in China as dire: “Just hanging on and hoping tomorrow will be better.”
This level of competition also drives innovation, and some of the products we saw were incredible. Would they sell here? Absolutely, and not simply because they are inexpensive. We saw the full range of products, from entry level to ultra luxury, and there is innovation throughout.
Consider the NIO Firefly. Recently launched, this car is seen as a key option for the European market. It starts at $16,410 in China, but purchased with the Battery as a Service (BaaS) option, it is even less. On the other hand, their luxury offerings bring a feature set that we simply don’t see over here, much of it driven by incredible use of technology.
Some OEMs, such as Huawei and Xiaomi, take technology leadership to a whole new level. Both originated as smartphone companies, and this shapes the market in profound ways. They offer a level of seamless integration between car, home, phone and appliances (which they also sell) that no North American or European OEM can touch. This elevates the overall user experience as it touches so many aspects of their lives. It also creates an ecosystem that clients will have a very hard time switching away from.
I’m so woven into the Apple ecosystem (phone, computer, iPad, Apple TV at home) that I never even consider an Android device. Imagine the customer lifetime value if you basically had customers similarly locked into your vehicle brand.
Their product cycles update on a smartphone-like schedule too. Think of a two year cycle instead of five. Customers have gotten used to it, and now expect it across OEMs.
What have our Australian cousins learned in opening their market to Chinese OEMs? Chinese market share is now over 20 per cent and growing, stealing share in a mature market. Some dealers are surrendering their legacy franchises, finding they can’t compete. Volvo and VW are examples I was told about, but there are others.
Dealers with Chinese franchises are finding them a challenge. I heard one example of a dealer who did a strong job, exceeding an aggressive sales budget. The Chinese brand’s reaction was to say that the budget was clearly soft, the market potential much greater than expected, and promptly dropped two other stores into what was supposed to be the original store’s exclusive market area. Ouch.
Ok, enough for now. There is far more to be said and lessons to be shared. Look for more in our coming issues. If you get a chance to go, do it. If you want a travel partner, let me know. I can’t wait to get back.
