China, it seems, is fast becoming the future of our auto industry
China is out to conquer us.
You'd think that we're talking about some disputed isles, shoals, or sandbars to our archipelago's west, but no. We're talking about our home islands, but not in some kind of militaristic invasion.
In the last 12 years, the Chinese auto industry has their sights set on expanding in the Philippines. Honestly it's hard to see why: our total industry volume is just over 400,000 vehicles in 2018, while China's own auto industry sold 28.1 million.
Still, they see us as a market for growth, arguably a testing ground to see how their products, their brands, and their business practices would fare elsewhere in the world. But to say that Chinese cars in the Philippines has had a rocky start is a total understatement. The first major foray of the Chinese auto industry failed completely not once, but thrice.
That distinction goes to the first distributor of Chery. Iseway was a company that really started operations in the Philippines in 2007. Sales were alright, and the dealership network expanded extremely rapidly throughout the country as dealers wanted to try their hand at this fairly new concept of selling very affordable Chinese automobiles. Back then, you can get a little QQ3 hatchback (the Daewoo Matiz/Chevrolet Spark clone) at an SRP of PhP 373,000. And that's with an automated manual transmission or AMT.
The cars were unabashedly cheap and somewhat cheerful, but the market did accept that these cars had potential. Never mind the lackluster safety, the phenomenon of an unbalanced drive at speed, or the times when some panels literally dropped off (the inner plastic panel of the Chery V2's tailgate fell on my head as I was loading my bags), customers were prepared to accept those many misgivings because they just intended the car to drive at low speeds to places like the mall or the supermarket. But what really factored into their downfall was how the domestic partner handled the brand.
To put it bluntly, the aftersales experience sucked. Yes, the parts were very cheap; Iseway's former execs told us that if you accidentally left the key in the car, just break the window. It costs about 500 pesos to replace. But that's if the distributor actually had the parts in stock. And then they couldn't get plates quick enough because, as rumor has it, they tried to submit homologation papers to the LTO... in Chinese!
Yes, they can sell on price, but what mattered more was how they handled customers and their cars after the sale. That's how they lost customers from individual car owners, all the way up to their major fleet clients; Coca-Cola was the biggest one if we're not mistaken.
And the way the brand was communicated, particularly with us in the press and media, was very different from other corporate entities. During their first media drive, they said that there were girls at the beach resort we were staying in La Union. Being a single guy in his 20's at the time, I thought it must be a nice resort with lots of guests; it was October 2007, or the sembreak period. But no; what they meant was there was a gentleman's club in the resort... right above our rooms.
It cannot be understated that Chery's initial failures really left a bad taste in our market. During this time, a lot of other Chinese automakers came into the country as part of the first wave after Chery's big and difficult wake. China's First Automobile Works (FAW) came in but didn't really make a big impact. Chana came into the market too with the Benni and some of their little work trucks/vans, but they didn't make an impact either. Geely appeared in the market with a company involving the multi-brand luxury distributor that managed Mercedes-Benz, and they sold the car we called the “Panda”. That too didn't last.
The list goes on, and honestly, we can't keep track of them all as there were so many attempts to bring Chinese passenger cars and SUVs to the market, many of which failed to really go mainstream. By our assessment, the issue wasn't because Chinese vehicles at the time were for the most part clones of other brands. Sometimes they were subtle, but often they were blatant. But that didn't matter as much to their target market; people who just needed a car to get from A to B. It didn't matter as much as many of us would have thought if it was a copy. So long as it worked, it was fine. The problem really was aftersales, or the lack of it.
Before some of the Chinese automakers could readjust, the already long-established players in the auto industry responded, and they did it with models that were below the PhP 500,000 threshold.
Hyundai looked to India, and launched the 814cc Eon in mid-2012; they priced it at PhP 438,000 for the entry grade model and PhP 498,000 for the top-of-the-line variant. Mitsubishi followed suit with the Thai-made Mirage hatchback with a 1.2-liter motor paired with either a 5-speed manual or a CVT in November 2012, and they priced it to start at PhP 498,000 at the time. Toyota, however, delivered perhaps the strongest blow in November 2014 when they launched the Indonesian-made Wigo (aka: Daihatsu Ayla/Toyota Agya). The country's number one automaker priced it at PhP 448,000 for the base 1.0L 5-speed manual version, and despite the price increases, the Wigo is still on the sharp end of the sales charts; last year, it was the third best selling vehicle after the Vios and Innova.
These three (among others) were the primary reasons why the Chinese auto industry really had a lot of trouble breaking into the Philippine market. The pricing was the key, and these three models from three leading brands in the brand-conscious Philippines wanted to nip the entry of cheap Chinese cars by offering models that got enough to their price range so that the price difference can be easily offset by financing deals. And there was no denying the fact that having a T, an H, or three diamonds arranged in a star mattered a great deal to consumers.
If you noticed, the failures of China's automobiles were largely in the passenger car segment. In the commercial vehicle segment which includes vans, pick-ups, trucks and to an extent, SUVs, the situation is very different. And that's where China's auto brands can possibly find more success.
Of the many, many automobile manufacturers in China that tried to enter our market, only Foton has had a fair deal of success. They differed in strategy by focusing not on passenger cars (not that they had any in China) but on commercial vehicles. They even sold all kinds of heavy-duty vehicles; essential equipment with high demand in a country that was undergoing development and economic growth.
The strategy was easier to justify: whereas private vehicle owners will be more conscious about the vehicles they drive, commercial vehicle customers cared more about reliability and the returns on their investments. Think about it this way: if their customers can get three trucks for the price of two units (or even just one) pf a similar Japanese-branded model, that's a strong argument in your favor. And the distributor behind Foton knew these kinds of customers well; after all, they're the same company that owns and operates United Auctioneers in places like Subic.
So it came as no surprise that Foton has expanded strongly around the country, particularly in developing provinces. And that's also why other Chinese automakers followed suit, eager to get a slice of the pie that Foton cleverly carved for themselves over the years. Jinbei, JMC, and many others are trying to compete. Even Dongfeng is coming into the market now, and they're backed by the same distributor behind India's Tata motors and the company behind the Diamond Motors network of Mitsubishi dealerships.
But Foton's success is also a major factor in the re-entry of Chinese auto brands in the country, and not just the commercial vehicles. In the last year alone, we've been to China quite a few times, often upon the invitation of organizations eager -cliche as it may sound- to re-enter our shores. And we're not talking about islands in the West Philippine Sea, nor are we talking about new companies with no experience in our industry.
Geely, for instance, has just begun its comeback. This time, they've got the backing of Sojitz Corporation; the same company that -for decades- had significant shares in Mitsubishi Motors Philippines Corporation. They've since diversified, taking on the Fuso brand as well; that means they'll have Geely's private car models starting with the Coolray crossover, as well as Fuso's strong line of commercial vehicles like the Canter.
One such Chinese automaker that is making headway in our market is MG, and they are now brought in by the same guys behind Chevrolet. The MG brand may be a British in origin, but it's very much Chinese now thanks to ownership by SAIC. Make no mistake though, these are not copies; they're proper models with far better build quality than many would expect. And they look good too, so it comes as no surprise that we're seeing more and more of them on our roads.
Beijing's BAIC is in the market, and they are brought in by the same company that, for decades, handled the commercial vehicle side of Nissan. When Nissan consolidated its operations as a new unified entity, UMC looked for something else to sell to their customers, and BAIC was there with their LCVs.
GAC Motor is also in the market, but there's something different about their approach: they want to compete on merit, not price. We've driven a few of their models, and while there are some nuances with their kind of automobile, there is quite a bit of promise in terms of styling, premium comfort, advanced features, and build quality.
One thing that surprised us is that Hyundai and Kia. Yes, they're Korean, but earlier this year they started to offer two small sedan models that originate from their factories in China for the Chinese market: the Hyundai Reina, as well as the Kia Soluto. We've tested both cars fairly extensively, and we're impressed with the cleverly economized design and engineering. And their pricing suggests they will succeed in sales.
Even Ayala's Volkswagen Philippines got in on the trend. No longer are they selling the European Tiguan or Mexican-made models like the Jetta, Polo, or the now-discontinued Beetle. Instead, they opted for the Chinese-made Volkswagens under the German automaker's joint venture with China's SAIC. That meant Volkswagen now sells models like the Lavida, Lamando, and Santana. They still sell the Tiguan, albeit the previous generation model from China. The vehicles were more affordable and more profitable, but they're still working to re-communicate their new brand to consumers. Maybe they should have taken a page from Hyundai and Kia's playbooks and offered one model to test the waters for their brand.
But the move that is undoubtedly surprising us the most is the re-re-re-return of Chery; yeah, this will be the fourth time. We heard from our sources that the Philippine distributor of Foton (as well as the local assembler of the Toplander SUV) is looking at expanding their portfolio by working on bringing back Chery. We're still skeptical, but judging by the progress that we've seen in Chinese-made automobiles in the last 10 years, maybe the time is now right for someone to try and make a new impression with the brand.
There are many more on the way, and you'll be reading more about them in the coming months.
We'll say this straight up: there is a lot of potential in Chinese-made automobiles. We used to joke about them before, but many of us knew that given enough time, a proper investment in development to drastically improve reliability and safety, a much more meticulous approach in improving build quality, pumping money into making their models look better, and focusing on aftersales, the Chinese auto industry can easily be an unbeatable player on the world stage. And we're seeing this progress in the latest China-made models that we've driven.
There's nothing really stopping them from dominating the global auto industry. Many of these brands are state-funded, so there's that government-level source of funding. And with situation of the auto industries of other continents with increased costs, economic turmoil, all kinds of controversies, and worker strikes, the time for them to strike is now.
These global factors are inadvertently helping the auto industry of the People's Republic of China be a credible player in markets all over the world, and judging by the influx of many new Made in the PRC automobiles into our country, they want us to be their first major conquest in what is shaping up to be a grand global expansion plan.