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Exchange rate plays havoc with Chery’s SA pricing strategy

5th June 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Sales of Chery vehicles have dropped by around 20% since peaking in 2011 and 2012, says Pedro Pereira, who is responsible for the Chery, FAW and Foton brands within the Imperial group.

All three brands are imported from China.

Pereira says the weakening rand has played havoc with Chery’s pricing in the local market.

Chery, which launched in 2008 in South Africa, could once sell its QQ small hatchback for R69 000 and its Tiggo small sports utility vehicle (SUV) for R169 000, ensuring substantial volumes for the brand. The nearest Tiggo competitor was priced at around at R230 000, says Pereira.

However, a weak rand saw the price of the Tiggo increase to R199 000 on the old model, while traditional brands woke up to the Chinese threat, developing competing vehicles, such as the Renault Duster, in the same price band.

The Chery J2 midsize hatchback did well at R129 000, but up at R139 000 it suddenly competes with Toyota’s Etios, imported from India, adds Pereira.

Imperial is, however, not abandoning the distribution of the Chery or any other Chinese brand in South Africa, emphasises Pereira.

To survive the current economic go-slow, Chery South Africa (SA) has adopted a strategy where it is “cleaning up and looking at overspending”, says Pereira.

Chery in China has also come to the party, having realised that many of its importers are struggling, adds Pereira.

In order to bridge this difficult period, Chery SA and Chery in China have adopted temporary emergency exchange rate pricing, whereby Chery SA can negotiate a shipping price in accordance with the rand’s standing against the dollar.

This also benefits Chery as it wants to continue manufacturing and exporting vehicles beyond the current currency volatility, especially as the Chinese domestic new-vehicle market “is levelling out”, says Pereira.

He adds that the quality of Chinese auto brands has been improving in leaps and bounds as these brands increasingly find themselves competing against traditional carmakers, now all with factories in China.

China’s willingness to cut its profits means that Chery SA will manage to keep prices steady for the rest of the year, with increases only likely in 2016.

New-vehicle prices, in general, are expected to increase by between 6% and 8% in South Africa this year.

“While we are building the brand, we need a temporary 10% to 15% price gap between the Chery and the traditional brands,” says Pereira.

Chery SA hopes to launch the new QQ by year-end.

“We have to wait for the development of the right-hand-drive vehicle,” notes Pereira.

He also wants to expand the Tiggo SUV range, adding the midsize Tiggo 3 and big brother Tiggo 5 to the local range.

“This will be next year, hopefully.”

Chery SA is also testing a small 800 kg bakkie for the South African market.

Another part of the survive-to-thrive strategy for Imperial’s Chinese brands has been to organise dealers into multifranchise establishments, stocking FAW passenger cars, Foton and Chery vehicles under the same roof.

The R99 000 FAW V2 small hatchback has been the best-selling model among these three brands.

It is expected that FAW will soon introduce a 1 t bakkie to the local market, while Foton will see the introduction of a nine-seater luxury minibus, as well as the Sauvana SUV.

The Foton Tunland will see a facelift later this year, says Pereira.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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