Auto Industry

Cheap but not cheerful

Local car brand Xiali is struggling to compete

Feeling blue: the Xiali N5

The original ‘People’s Car’ was designed by Ferdinand Porsche, which may strike some as a paradox given his association with a much more expensive roadster. But in 1934 the German was given a different mission: to design an affordable car that could carry two adults and three children at speeds of 100km/h. The Volkswagen was the result.

China has a ‘people’s car’ too – in terms of an affordable, compact vehicle designed for familes – and it’s called the Xiali.

Close to 1.8 million Xiali cars have rolled off assembly lines since 1986. And last year the Xiali N5 sold 198,680 units, besting its closest rival, Chery’s QQ, in the mini-car category.

But as CBN Weekly reports in an article entitled ‘Goodbye Xiali’, all is not well with the brand. The maker of China’s best-known homegrown car – its name translates as ‘Charade’ in English – has found itself in an unenviable position. The more vehicles it sells, the more money it is losing.

The brand became a subsidiary of FAW in 2006 but Xiali’s recent results make for bleak reading. While sales of Xiali cars increased by 40,000 last year, falling gross margins resulted in a loss for the division of Rmb990 million.

CBN says Xiali is suffering from fierce competition – particularly from Geely, BYD and Chery – forcing it to cut prices to shore up sales volumes.

“Selling Xiali cars is barely profitable, even loss-making,” a salesman at a Hebei dealership confided to the magazine.

The squarish shape of the car is said to put off younger buyers. “We have repeatedly urged the manufacturer to make the shape more fashionable, but our view has never been listened to,” the salesman complains.

The carmaker’s troubles date back to 2007. Prior to that, Xiali didn’t have to pay much attention to styling new models, because most cities in China required that taxi drivers use the domestically-made vehicle. Taxi sales made up half of the firm’s sales.

But the grip on the taxi market began to slip in 2007. Beijing elected to buy Hyundai vehicles for its own taxi fleet, to boost its image ahead of the Olympics. Other cities followed suit, opting for bigger cars made by Volkswagen and Hyundai.

The N5 is Xiali’s newest incarnation of its classic model, and was released in 2009 to win back consumers. According to the firm’s website, the name derives from the five innovations that were employed to ‘reinvent’ the familiar Xiali vehicle. These were “new elegant style, new advanced power, new humanism trim, new delicate operational chassis and new high standard safety body.”

And the N5 did well enough last year in sales volume terms, helped by a Rmb60,000 ($9,259) price tag.

But Xiali still hasn’t found a profitable mix, and the N5 must now compete with plenty of new models from rivals. For instance, Chery has announced it will launch or upgrade five models this year. Its Cowin E5 was also well reviewed at the Shanghai Auto Show in April.

So it looks like the Xiali could continue to lose ground. In fact, there is almost something desperate in its description of the N5 in its English-language marketing materials, which talk of “a worth-respecting classical car” [sic].

Perhaps something was lost in translation, although Xiali’s parent FAW will need to do more to boost the N5’s appeal, as well as address its profitability problems. The latest plan is to open a new Xiali plant this year, to bring down manufacturing costs. The target is then to raise sales to 400,000 units per year.

But CBN Weekly still thinks it may be a losing battle, and that the Xiali is fast becoming a drag on FAW, one of the nation’s big four state-owned carmakers.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.