Opinion polls are a symbol of change in China. On the newly spruced-up boulevards of Beijing, where a good Chinese restaurant has become difficult to find among the proliferation of Italian, French and American eateries, earnest young people stand with clipboards, ready to question local residents.
On June 23, the Caijing Shibao (Financial Daily) published a nationwide survey of consumers that asked: 'What is your favorite taxi?' The easy winner was the Fukang - a locally built version of the Citroen ZX - which won nearly 36 percent of the vote. The Volkswagen Santana finished a distant second, and the Volkswagen Jetta finished third. Respondents indicated their preference for a well-built, clean, safe vehicle. They also preferred the color red (as opposed to green or yellow), but Citroen does not appear to gain any advantage from that.
At any rate, the survey offers hints of Citroen's rising prospects. Taxis get little attention in most countries, but in China they account for one-third of all car sales. Citroen halted production of the ZX in France more than three years ago. But its Chinese joint venture, Dongfeng-Citroen, hopes to convert the ZX - called Fukang in this market - into a major seller. The venture launched production in its Wuhan plant in 1996.
About one-third of all Fukang cars are sold as taxis. Not content with supplying taxis, Dongfeng-Citroen is challenging Volkswagen AG's Chinese joint ventures for a major share of the fast-growing private car market. The venture sold 19,400 cars in the first five months of this year, up 34 percent over the same period of 1999. This increase also came at a time when overall car sales were relatively flat. The company's market share has risen by two percentage points to 9.1 percent in the period. What is the clue to the ZX's success against the Volkswagen Santana? 'Our old car,' says one senior Wuhan official, 'is newer than their old car.'
While the Fukang is not an up-to-date model, its quality is good. Every year, French engineers come to audit quality at the Wuhan plant, which must meet the same standards as French factories. Because 80 percent of the Fukang's parts are locally produced, the engineers also audit the company's suppliers. Citroen's engineers say the car's quality matches that of vehicles built in France.
Despite the Fukang's age, Michel Allain, deputy general manager of the joint venture, defends it. 'Our car is not as old as Santana or Jetta,' he says. 'Fukang (meaning `prosperity and happiness') is a young car in China.' Taxi drivers like it, he says, because of its space and fuel economy. In addition, it is priced at about 100,000 yuan, or $12,500. Its price falls between the Santana and the tiny Daihatsu-derived Xiali, which has found favor as a taxi in Beijing and other cities. But, 'I don't know how long we can continue selling it,' Allain says.
Dongfeng-Citroen's dilemma can be seen throughout the Chinese auto industry. Given the region's relatively small market - and its sensitivity to price - the temptation for automakers is to sell old models using tooling that has long since been amortized. It can be a profitable strategy - for a while. But it won't work forever. In Brazil, for example, automakers selling obsolescent cars suffered when General Motors and Fiat introduced the more up-to-date Corsa and Palio.
Something similar could happen in China. Until recently, it was enough to offer almost anything on four wheels. Volkswagen has long recognized that an outdated model such as the Santana can do well in a price-sensitive market. But now, automakers are preparing to offer more stylish models. For example, Volkswagen plans to introduce a sub-Lupo entry-level car, while GM is considering a low-priced version of the Corsa. And in 2001, Toyota will start producing the Vitz in a Chinese assembly plant.
Given the coming onslaught of new models, Dongfeng-Citroen only can take temporary comfort in the Fukang's healthy sales. Indeed, the company plans to upgrade its own model lineup. Recently it added a model called the 988, which was developed especially for China. The car is a sedan version of the hatchback ZX. Dongfeng-Citroen may add a third model: the Picasso, its new compact minivan. Other models, possibly including the Saxo minicar, may be on the way. 'With one product, you cannot last long in this moving market,' says Jean-Claude Germain, PSA/Peugeot-Citroen SA chief China representative.
The time may be right for Citroen's Picasso. Renault, for example, wants to assess the suitability of compact minivans in the Chinese market. The French automaker has delivered a fleet of Megane Scenics to Beijing for use as taxis. Likewise, GM makes no secret of wanting to import Zafiras from Thailand to China. Allain admits if Citroen builds the Picasso, the company also would likely make the Xsara, an upscale car that shares its platform. The Picasso made its debut at the Beijing auto show in June, complete with badging in Chinese characters. At the time, officials stressed that they were just measuring public reaction. But Allain's boss, Zhang Siduan, later said that 'at least 500 Picassos will be built at Wuhan before the end of 2000.'
Given the Picasso's price, however, it is hard to see it as a huge volume seller in China. Citroen will need a smaller, cheaper car to attract private buyers, who account for about one-third of all car sales in China. (The rest of China's car sales are evenly split between taxis and both corporate and government fleets.) Citroen already has enjoyed great success with this group. Private buyers account for more than 55 percent of Dongfeng-Citroen's sales, the highest proportion of any Chinese manufacturer.
What will the company do to expand its share of the private market? The company is not saying, but there were some clues in its Wuhan assembly plant. Wuhan, about 1,000 kilometers south of Beijing, is not a pretty city. There are no tourist sights. It is a busy industrial center and one of the country's most important inland ports, lying at the confluence of the Yangtze and Han rivers. The Citroen plant is in a special development zone. Its more than 2,000 workers have their own village next to the plant in which to live and shop.
Built in 1992, the plant is designed to produce up to 150,000 vehicles a year. But production falls far short of capacity. In 1999, the joint venture's best year, the plant produced only 43,850 cars. 'When we started the project in 1992, everyone thought the China market by 2000 would be around a million units,' Allain says. 'Hence the big capacity. It's easy to see in hindsight, but it would have been more expensive to do it in stages.'
Given Dongfeng-Citroen's modest sales, it seems incredible that the company would want more production capacity. But there are signs of preparation for expansion. Earlier this year, Dongfeng-Citroen doubled the capacity of its paint shop to 300,000 units a year. The production line also has been redesigned to leave space for two extra work stations between existing ones. Plant staffers say it would be possible to produce two different models simultaneously on one assembly line. The Picasso would account for some added production, but in China it will be for a small market. Does the company plan to produce a high-volume model, too? Visitors may have received an answer when they spotted a Saxo zipping around the plant. Embarrassed company officials declined to explain its presence.
Admittedly, an expansion of the Wuhan plant seems foolhardy at a time when car sales have declined. Sales of cars (as opposed to buses or agricultural vehicles) have lagged far behind the optimistic predictions of a few years ago, totaling just under 600,000 units last year.
The market slowdown has worsened as many potential buyers have held off until China's expected entry this year in the World Trade Organization. Chinese consumers apparently hope that the trade agreement will immediately reduce auto prices, which are among the highest in the world. The sluggish market has seen some carmakers offer personal computers or mobile phones as incentives to buy. Even Dongfeng-Citroen has joined in a round of price cuts. But the company's product strategy has been nimble.
First, the company created a new market - the Fukang hatchback in a larger segment than the rival Xiali hatchback. Now, it appears to be looking at the economy-car market with the tiny Saxo. And finally, it is entering the people-mover category with the Picasso. Is China ready for Cubism? We may soon find out.
You can e-mail free-lance writer John Boley at [email protected]