With too many kids, Chery Auto lives off Beijing benefits

Sun Nov 18, 2012 4:05pm EST
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By Fang Yan and Kazunori Takada

BEIJING/SHANGHAI (Reuters) - Chery Automobile Co CHERY.UL, once China's largest home-grown auto maker, is relying on government subsidies to turn a profit while domestic rivals Great Wall Motor Co (601633.SS: Quote) (2333.HK: Quote) and Geely Automobile Holdings (0175.HK: Quote) pull ahead.

The divide between winners and losers in the world's biggest auto market shows the value in focusing on fewer products and brands to get more bang out of the investment buck - a strategy Ford Motor Co (F.N: Quote) used to avert bankruptcy in 2009.

"All indigenous brands were neck-and-neck in competition 4 to 5 years ago. But those with a focused product strategy and a cautious approach are now ahead," said Sheng Ye, associate research director for Greater China at industry consultancy Ipsos.

Research by state-owned China Lianhe Credit Rating Co shows that Chery would have lost money in each of the past three years were it not for government subsidies. The losses for 2009 and 2010 are noteworthy because auto sales soared then, thanks to Beijing's incentive programs.

The company recorded profit of 66 million yuan ($10.59 million) in 2009 and 240 million yuan in 2010, according to the report from Beijing-based Lianhe. That means it would have been deep in the red if it were not for the 633 million yuan and 1.12 billion yuan in subsidies it received in those two years.

Chery spokesman Huang Huaqiong said the company has made substantial investment in technology and is now adjusting its brand strategy, and he expressed confidence that performance would improve.

Ipsos's Ye said Chery could have remained a front runner if it had focused on building up its low-cost brand QQ, its first hit model, which has been labeled a copy of General Motors Co's (GM.N: Quote) Chevy Spark.

Instead, it rolled out dozens of new models with little differentiation and even created two additional brands, Riich and Rely, which never caught on.   Continued...