Breaking the market

Ake Lertsirirungsun & Note Tumrasvin

09 May 2018

ASEAN Car market

New Chinese entrants in Thailand and Indonesia – can they redress past failures?

With its low vehicle density, large population and investment-friendly laws the ASEAN market presents obvious attractions for automakers seeking to invest in the region. This applies to both existing players looking to gain a stronger footing, or new brands hoping to break into the market.

In the recent past, several Chinese OEMs have made forays into the ASEAN region. MG entered the Thai market in 2014, while Wuling and Dongfeng Sokon (DFSK) ventured into Indonesia in 2017.

“It will be interesting to see if things will be different this time around”

They were by no means the first, however, as Chery (Thailand and Indonesia) and Geely (Indonesia) both had a presence in the region at one point, but ended up withdrawing from the market as they were unable to generate high enough sales volumes to justify staying.

Light Vehicle Sales Forecast - China & ASEAN

It will be interesting to see if things will be different this time around and whether the survival strategies put in place by MG, Wuling and DFSK will help them to succeed.

All three brands appear to be taking a four-pronged approach.

  1. OFFER THE RIGHT PRODUCT, BUT AT LOWER PRICES.

MG Thailand selected the MG3 Sub-Compact Car range as its core offering in the early phase of its market penetration as this is the largest segment in the Thai Passenger Vehicle market. This was followed by the launch of the GS and ZS models to capitalize on the booming SUV trend.

Wuling similarly targeted Indonesia’s biggest market segment by launching MPVs and, by extension, going head-to-head with the leading models in the market, Toyota’s Avanza and Innova.

Crucially, every model launched by MG, Wuling and DFSK is cheaper than its market rivals.

By comparison, Chery and Geely failed to appeal to local tastes by launching the QQ and A1 Mini Cars in Thailand and the MK2 Sub-Compact Car in Indonesia, respectively.

  1. LOCALISE PRODUCTION.

By manufacturing vehicles locally, all three brands will benefit from lower production costs, versus the cost of importing a CBU. Not only do the Thai and Indonesian governments offer generous tax incentives for vehicles produced in their respective countries, but import taxes for CBUs are prohibitively high.

  1. PROVIDE LONGER WARRANTY PERIODS TO ALLAY ANY FEARS OVER PRODUCT QUALITY.

Automakers in Thailand and Indonesia typically offer warranty periods of 3 years, or 100,000 km – whichever comes first. This compares to 4 years/120,000 km for GM Thailand and 7 years/150,000 km for DFSK.

These extended warranty periods are designed to reassure consumers and redress the overriding perception that Chinese vehicles are inferior to Japanese ones in terms of quality.

  1. BUILD A DEALERSHIP NETWORK.

All three Chinese players are in the process of establishing and expanding dealership networks to support sales nationwide and provide a suitable level of after-sales service.

Only time will tell whether this new crop of Chinese players will fare better than their forerunners. MG’s performance in Thailand has been promising so far, with sales jumping from 3,800 units in 2015 to 12,000 last year. But, as these numbers suggest, we are still talking about a fairly small scale. If they succeed, however, these pioneers could pave the way for other Chinese brands to follow in their footsteps.