The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
Bloomberg
In China’s auto market, carmakers are employing a strategy that’s long been eschewed by the rest of the world: if a new model is helping you win, introduce a twin. Take Honda Motor Co., whose namesake brand has been the fastest growing in China’s mass market this year. With its sales gaining on demand for Vezel
and XR-V compact sport utility vehicles that are virtually the same, the Japanese automaker plans to sell a second version of its recently introduced Avancier
full-size SUV next year, Executive Vice President Seiji Kuraishi said in an interview.
In the U.S., such a move would be panned as badge engineering, a strategy often pointed to as one of the reasons for the downfall of General Motors Co.’s bankrupt predecessor. In contrast, Honda, Volkswagen AG and Toyota Motor Corp. are among carmakers embracing the approach in China, the world’s biggest auto market. The reason can be traced back to the country’s requirements for vehicle producers to set up joint ventures with local companies.
“In the beginning, we were doubtful whether you can really double sales just by making two versions, and thought even 1.5 times growth wouldn’t be bad,†said Kuraishi, who headed Honda’s China business from 2010 through June this year before he was promoted.
“The result, especially for the Vezel and XR-V, turned out better than expected.â€
The second version of the Avancier will be made by Honda’s joint venture with Dongfeng Motor Group and help boost Honda’s sales in China by more than 7 percent, Kuraishi said, which he assumes will outpace industrywide growth.
The initial Avancier model, introduced in October, is produced with Guangzhou Automobile Group and is the Honda brand’s costliest in the country, starting at 270,000 yuan ($38,850).
Honda rose 0.5 percent as of 10:50 a.m. in Tokyo, while the benchmark Topix index gained 0.2 percent. The company’s shares have declined 9.3 percent this year. China requires foreign carmakers to enter joint ventures with domestic companies to produce vehicles locally and allows a maximum of two partners for passenger vehicles. Manufacturers including Honda, Volkswagen and Toyota have opted to establish two ventures to boost sales and leverage local partners’ strengths, which can include setting up supply chains and manufacturing facilities and tapping government incentives.
Foreign automakers typically try to ensure both partners
are supplied with popular models for sake of balance. Making slightly different versions of the same vehicle helps accomplish this with little additional development expense.
Still, badge engineering isn’t without risks. Marketing virtually the same car for two different brands probably is going to be more costly than for just one. And carmakers also face risks with cannibalization, where two dueling models erode the market share and profitability of each another.