Chinese carmakers take aim at high-end market

By Fang Yan and Chang-Ran Kim

SHANGHAI (Reuters) - Still new to the trade, Chinese automakers are revving their engines to take an ambitious path to the premium and lucrative end of the car market as they aim to share the spoils with dominant foreign brands.

At the Shanghai auto show next week, indigenous, cut-price makers such as Chery Automobile and Geely Automobile will showcase sedans to go up against some of the best-regarded models from entrenched brands such as Volkswagen's Audi.

"We want to compete with locally made foreign brands," Chery Chairman Yin Tongao said recently at the launch of the premium Riich and Rely brands.

"Toyota and Volkswagen both started from the lower end and became established players in the upper market. We are taking the same path," he added.

Most Chinese carmakers, including big, state-owned ones such as the parent of Chongqing Changan Automobile and FAW group, have so far focused on competing mainly on price with basic and often rudimentary vehicles, leaving foreign-branded cars to sweep up the mid-to-high-end segments.

But as wealth grows in what has become the world's biggest car market, local manufacturers are looking to boost their profile to cater to what some say is a generally patriotic population that would, given the choice, opt for local products.

Priced at 200,000 to 300,000 yuan ($29,300-$43,900), the Riich G6 sedan would be Chery's priciest model, which it sees competing against the Audi A6 -- a favourite among China's senior government officials. The model is due out around August.

Chery's best-selling QQ, meanwhile, sells for as little as 30,000 yuan, or less than what a Shanghai car licence costs. The privately held carmaker aims to sell up to 60,000 cars under the two new brands this year.

Smaller rival Geely will unveil the EC825, a mid-sized sedan under the Emgrand brand it hopes to roll out this year.

"We used to make cars affordable for ordinary Chinese. We have changed our strategy now: We want to make good and quality cars," Geely chairman and founder, Li Shufu, said on state television recently.

Pickup truck and sport utility vehicle maker Great Wall Motor Co will also unveil its first mid-sized sedan, codenamed CHC011, as well as a high-end version of its Hover SUV.

Great Wall has not set a launch date for the sedan, to be powered with a 3.0 litre V6 engine, but said it was good enough to compete with foreign cars in the 300,000-yuan range.

RISKY ROAD

Analysts expect a rocky road to acceptance.

Toyota's premium Lexus brand became an immediate hit in the United States in the early 1990s but that was after half a century in the business and billions of dollars spent in painstaking research and development.

"There is a learning curve in the automotive industry," said Graeme Maxton, an independent industry analyst based in Europe.

"The danger is, if they move too quickly they undermine their own brand because the quality or safety is not right. And then it's much more difficult to succeed. It will take them much longer."

Brilliance Auto, the parent of Brilliance China Automotive Holdings, learned that lesson the hard way when one of its sedans scored just one star on a five-star rating scale in a 2007 crash test in Germany, forcing it to make swift improvements.

"If you do that again and again, nobody is going to buy your cars. It's that simple," said a senior executive with Daimler AG, maker of Mercedes-Benz cars.

Still, few are ruling out eventual success in the world's most populous market with its wide-ranging consumer base of sophisticated urbanites and newly rich middle class.

Ambitious Chinese brands will take comfort in Hyundai Motor's success with its Genesis premium sedan, which was awarded Car of the Year at the Detroit auto show in January after much skepticism about a South Korean brand going up-market.

"What Chinese automakers are doing today is no different from what Toyota did decades ago," said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.

"It's unrealistic to expect them to grab customers from foreign rivals right away or improve their brand image overnight, but it's a good start."

(Additional reporting by Chang-Ran Kim)