CHINA can boast that it is home to the world’s most profitable carmaker. But the company may soon run out of open road.
Hong Kong-listed Great Wall Motor has the fattest margins in the auto world, says Sanford C. Bernstein’s Max Warburton. It posted an operating profit margin of 18.4 percent in the first half of 2013.
Great Wall’s secret sauce is that sport utility vehicles, which typically yield higher profits, account for half of the autos it sells.
Great Wall also runs a lean operation by spending little on research and development or marketing. The country’s large demand for SUVs has also helped Great Wall. Despite the economic slowdown, sales of these vehicles are projected to grow 22 percent this year, compared with 13 percent for passenger cars overall, says LMC Automotive.
Great Wall’s SUV sales soared 78 percent year on year in the first half of this year, mostly by catering to the lower end of the market with vehicles priced below US$30,000. It leads China’s SUV market along with Volkswagen and Honda, according to Nomura.
But can Great Wall move up the product ladder? It plans to launch a bigger and more expensive SUV next year. But its low research and development budget, at just 2.2 percent of sales, may prove a stumbling block.
Quality is another concern. There are already complaints Great Wall’s engine is underpowered. (SD-Agencies)