SHANGHAI -- The unexpected, extended downturn in China’s new-vehicle market poses grave threats to the survival of many small domestic brands.
It has also sent General Motors rushing to the aid of a volume brand it created nine years ago at its light-vehicle joint venture in China.
GM unveiled the Baojun market-entry brand in 2010 under SAIC-GM-Wuling Automobile Co., a partnership between the Detroit automaker and SAIC Motor Corp. that previously only produced minibuses for the Wuling brand.
The strategy for launching such a brand made perfect sense at the time.
The entry-level segment of China's market was dominated by domestic brands such as Chery and Geely, which were weaker than GM in terms of engineering and technology.
Baojun, crafted by GM’s local tech center and equipped with the U.S. automaker’s engine technology, was designed to command clear competitive advantages over domestic brands.
The plan worked out wonderfully. Over the next seven years, Baojun sales grew as the brand steadily expanded its product lineup.
In 2017, Baojun became GM’s second-largest volume brand in China, exceeded only by Buick, with annual sales approaching 1 million.
The sudden contraction of the Chinese new-vehicle market starting in 2018, the first decline in nearly three decades, quickly turned Baojun into a drag on GM sales.
In 2018, while GM’s overall China deliveries dropped 9.9 percent to 3.64 million, Baojun sales slumped 16 percent to below 840,000.
In the first eight months, GM’s accumulative local deliveries slipped 20 percent to about 2.06 million. But Baojun sales fell short of 340,000, plunging 42 percent from a year earlier, according to SAIC and consultancy LMC Automotive. GM now only discloses its China sales on a quarterly basis.
The root cause of the downward spiral in Baojun’s volume is the weakening Chinese economy.
Entry-level brands have been hit much harder amid the downturn than marques with higher positioning.
Low-income households are more likely to cut spending on big-ticket items such as cars when the economy fades.
To rescue Baojun, GM is now seeking to move the brand upscale. In January, it revealed a new logo for Baojun, which is shaped like a diamond badge. The new logo is expected to be more attractive to young car shoppers than the initial logo, which resembles a horse, according to GM.
In the first half of this year, GM rolled out four upper-level crossover models under new logo of the Baojun brand, GM said. The starting prices of new products range from 84,800 yuan ($11,910) to 97,800 yuan.
By contrast, the starting prices of Baojun’s previous product mix comprising microcars, compact sedans, crossovers and multipurpose vehicles vary from 36,800 yuan to 75,800 yuan.
The new products also feature advanced electronic architecture, driver assistance and intelligent connectivity systems
Yet, they have obviously failed to reverse Baojun’s steep sales decline so far.
As few would expect Beijing and the Trump administration to resolve the ongoing trade disputes in negotiations resumed this week, the growth of the Chinese economy is widely expected to slow to 6.2 percent in 2019 from 6.6 percent.
That would add to the difficulty GM is facing now in reinvigorating the Baojun brand.
