BEIJING -- Foreign carmakers that have tied their fortunes to China's "Married Lions" should keep their eyes out for the "Young Tigers," Michael Dunne, president of Automotive Resources Asia Ltd., told the Automotive News China Congress.
Dunne called China's largest domestic automakers - Shanghai Automotive Industry Corp., First Auto Works and Dongfeng Motor Corp. - the Married Lions. All are hitched to at least two major foreign carmakers.
"They have no incentive to go out and build their own brands," he said.
In addition, they are pursuing the higher end of the market. Half of all passenger-car sales are in three combined markets: Greater Beijing, Greater Shanghai and Greater Guangdong province including Guangzhou city. One-third of all cars sold are priced at the equivalent of $25,000 or more. "That is highly unusual for a developing market," Dunne said.
The conventional wisdom is that as the coastal markets mature, customers inland will want the same models the rich urban elites are buying now. But Dunne said market research shows those inland consumers "buy cars on price, price and price."
"The makers selling cars priced at less than $13,000 will slowly encircle the global automakers," he said. "This is the same strategy Mao Zedong used to beat Chiang Kai-shek," he added. Mao was willing to let Chiang hold certain coastal cities while the Communist forces gradually encircled the Nationalists.
Offering another comparison, he cited the mobile-phone industry. In 1999, global brands like Nokia held 98 percent of China's cell-phone handset market. They sold high-tech phones to rich people, but "hit a wall," Dunne said. Other consumers just wanted functionality. By 2003, Chinese brands had 60 percent of the market.
The Young Tigers are taking a different approach. Companies such as Geely, Chery, and Shuanghuan are competing on price, in part by eliminating design and engineering costs.
The Geely Maple bears a striking resemblance to a Citroen model sold in China, while the Geely Merrie is based on the Daihatsu Charade.
Prices are strikingly lower. The Chery QQ is a knockoff of the Chevrolet Spark, a variant of the GM Daewoo Matiz. The QQ costs $6,600, against the Spark's $8,100. The QQ is outselling the Spark 6-to-1, Dunne said.
The Honda CR-V costs $28,900. The visually similar Shuanghuan Leibao costs $11,670.
"Nobody planning to buy a CR-V today is thinking of buying a Leibao instead," Dunne said. "But it's a scary beginning."
"The Young Tigers are driven and hungry to win customers. The Married Lions are making money. They're comfortable," he said.
On the other hand, he said the global makers, not the Young Tigers, will lead the way in exporting.
Once companies like Volkswagen AG and Honda Motor Co. establish that made-in-China cars are acceptable in price and quality, then Chinese suppliers will step up exports to aftermarket outlets like Wal-Mart, he said.
Meanwhile, Chinese automakers will build on their exports to Southeast Asia and Africa. "They know themselves there's a gap in quality and emissions standards" between their vehicles and those of the world's major automakers, he said.
Dunne offered the following "to do" list for automotive suppliers in China facing overcapacity and the looming faceoff between the Married Lions and Young Tigers.