Haval boss defends business case

Launching a new automotive brand is a major undertaking – and it rarely yields immediate dividends. But new SUV brand Haval is determined to stay the course for the "long term".

That's in the face of some troubling foreign exchange fluctuations however. Three years ago, one Australian dollar was buying 6.73 Chinese yuan. Even in May of that year, the lowest point for the dollar in its relationship to the yuan during 2012, the exchange rate was one dollar to 6.18 yuan.

As of October 2015 the dollar is buying just 4.55 yuan. And the dollar is at that low point just as Haval, a Chinese brand, is launching in Australia.

When Haval made the decision 18 months ago to set up in Australia, its first right-hand drive market, the dollar was still fetching 5.8 yuan. That's a 22 per cent slump.

Tim Smith is Haval Australia's CMO (Chief Marketing Officer). At the launch of the brand earlier this week, he told motoring.com.au that keeping local Haval dealers happy (ie: setting them up to be profitable at the earliest opportunity) was the company's prime concern.

"Our objective... all along, has been return on investment," he said. "Return on investment is critical, to be able to grow a franchise network. Franchise networks need to be self-sustaining; the only achievement of brand development through retail operations is return on investment.

"So our objective, all along... has been return on investment for the dealer network. To be able to achieve that means that we've got to be able to show a compelling business case, and that business case needs to be solid, it needs to be quantifiable, it also needs to show both a result on the front end, as well as the back end.

"I think we've been successful in trying to achieve that, and trying to explain to the majority of dealers that have engaged with our franchise.

"This brand stands out from other OEMs that have come in before... that we have a true RoI model that we have demonstrated to the dealers."

And that's all well and good, but where is the money coming from to support the dealers? Retail pricing is usually the last aspect of a car to be announced in this sort of scenario – precisely so it can be adjusted to reflect actual landed cost at the time of launch. But prices can only be raised so high for an unknown brand. Customers new to the brand, which is everyone, will look for some logical basis to buy a Haval product rather than a Toyota or a Mazda. Usually, that incentive to buy the new brand is competitive value.

And the new brand can't offset discounted pricing or enhanced equipment with increased sales volumes, because few prospective buyers even know the brand exists – and Haval is launching without a massive advertising and marketing campaign to raise brand awareness.

In short, the company as importer/distributor/wholesaler is likely to take a financial hit for an indeterminate period.

"No matter what the exchange rate, certainly we're not in the business of losing money, but what we have been able to do is... consistently maintain return on investment for local dealers and the local franchisees," Smith said.

The Haval exec says that the management team in Australia has been able to show the dealers a profitable business case "over a period of time."

Asked whether the Australian market can sustain yet another brand – Haval makes #52 of the brands selling passenger, light commercial and sports utility vehicles here – Smith stuck to the same line: the dealers are content they'll see immediate return on their investment and the brand will survive and succeed in the local market. Smith also said that even with the currency exchange rates factored in, the business model remained sustainable.

"We've still been able to maintain that model, all along, with the foreign exchange fluctuations. That's the commitment and that's the level of investment that this company is willing to maintain in the Australian market...

"The head office will consistently support this market on-going, knowing that the long-term goal is to grow this brand and make an impact in the Australian market."

Smith and his MD, Parker Shi, did not offer a direct response to the question posed by motoring.com.au: how long – in years – is 'long-term'? The question is pertinent in light of the reported decision by Haval's parent company, Great Wall, to end its distribution agreement with Ateco Automotive.

Smith denied that Great Wall was walking away from local customers, which strongly supports speculation that Haval will be the new distributor for Great Wall products previously distributed in Australia by Ateco.

Shi had this to say as a logical riposte to the question of Haval's survival in the Australian market: "If we're going to die, why come?"