Chery's factory in Hefei, Anhui province. (Photo/Xinhua)
State-owned automaker Chery Automobile has not earned a single dime of profit since 2007 following a disastrous choice of strategy which caused it to lose its market share in the increasing competitive Chinese car market.
The automaker has only survived with the help of government subsidies. Chery's annual revenue declined from 1.01 billion yuan (US$162 million) in 2007, bottomed out at 66 million yuan (US$10 million) in 2009 and rebounded to 239 million yuan (US$38 million) in 2010. During the same period, the government aid it received swelled from 285 million yuan (US$47 million) to 1 billion yuan (US$160 million). Its debt has reached a mammoth 30 billion yuan (US$4.8 billion) and a debt:asset ratio of 70%, according to the Chinese-language Ennweekly, a subsidiary of the state-owned Xinhua news agency.
The continuous losses show that the firm needs to transform its business model as soon as possible or it may soon be unsalvageable even with the support of government.
Less than ten years ago, Chery was in its heyday. After it produced its first cars in 2001, it managed to increase its annual sales to 300,000 vehicles within five years and sold a record 1 million vehicles in 2007.
All of that changed with a misplaced strategy shift in 2009 as Chery sought to slow down its expansion in order to make high-quality vehicles and enter the mid and high-end market. Midway through its adjustment, it tried to backtrack when it saw the country's car market recover rapidly and chose to launch multiple brands and promote rapid expansion again, leading to devastating poor sales in 2011 when the car market slumped back into recession.
Industrial insiders said the automaker's failure was its multiple brands strategy and poor quality, a problem shared by most Chinese car brands. They do not have the quality to enter the high-end car market and have to rely on slim profit margins.
Chery has come to realize its crisis and has planned a short-term margin rate at 3% and mid-term rate at 5% and will implement a series of new technologies and quality control in a desperate bid to increase its competitiveness.
Chery Automobile 奇瑞汽車