Chery Automobile Co's apparent profitability is reportedly misleading due to government subsidies, causing analysts to comment Monday that the leading self-owned auto firm in China should focus on improving a few vehicle models rather than on having an extensive model range.
"Chery has a lot of models - some 20 to 30 - on the market, yet none of them has sold well enough," Zeng Zhiling, an auto industry analyst with research firm J.D. Power in Shanghai, told the Global Times Monday. "These models, almost all low-end, sometimes even compete against each other."
Its brands like Riich and Rely have incurred losses ever since they were launched, China Business News (CBN) reported Monday, citing an unnamed insider with the company.
Chery is in a heavy spending stage, which puts pressure on its capital flow, the insider said, adding that the best solution is to get publicly listed, but since Chery is not, it has to turn to other ways of raising funds.
Chery's chances of getting listed are slim because it is not highly profitable and so will have a hard time convincing investors, Jia Xinguang, an independent auto analyst based in Beijing, told the Global Times Monday.
Chery issued medium-term notes worth 1.8 billion yuan ($288.7 million) as a fund-raising move in October.
The company registered a month-on-month sales growth of 10.5 percent in October, according to Chery Friday. Industry observers, however, said that despite the sales, Chery was still troubled by low profitability and heavy reliance on government subsidies.
"Unlike Geely, Chery has not finished transitioning from competing by price to competing by quality, one reason its profitability is low," Jia said.
In 2011, Chery made a profit of 203 million yuan, which was shown in its financial report, but without the 594 million yuan government subsidy, it would actually have suffered a loss of some 415 million yuan in profit, the 21st Century Business Herald reported in October.
Relying on subsidies "is a big problem for Chery," analyst Jia said, noting that it is not the only self-owned brand in the auto industry to suffer from this problem.
Chery made a deal last week for R&D cooperation with Guangzhou Automobile Group. But since the partnership is focused on technological advancement, it is unlikely to bring short-term profit to Chery, Jia said.
Chery said Monday that it is adjusting its branding strategy, though there is no timetable for completion. "We are still in a phase of managing brand integration, not yet in a phase of sales channel integration," Chery spokesman Huang Huaqiong told the Global Times, responding to whether the company is integrating its branding and sales channels.
The first half of 2012 saw a drop in sales for many automakers with self-owned brands, excepting a few like Geely and Great Wall, which realized a marginal growth in sales during the period.
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