One
Seize the trend
Great Wall Motors
taking the throne of Chinese SUV by pioneering and leading the trend
“Good decision makers know that decision making has its own process and its own clearly defined elements and steps. Every decision is risky: it is a commitment of present resources to an uncertain and unknown future. Making good decisions is a crucial skill at every level.”
⸺Peter Drucker
The biggest challenge that company faces is how to predict the future and seize the
trend. The motto of Cheung Kong Graduate School of Business, founded by Sir Ka-shing Li, is “seize the trend, understand the principle, and improve and practice with
best methodology”, of which “seize the trend” is the first and foremost.
Masayoshi Son of Softbank Group has a theory of time machine. He believes that the
United States, Japan, China and India have different phases in terms of IT industry
development. He thinks that we should do business in developed countries such as the
United States. When those markets mature, we should do the same business in Japan,
followed by China and India. It feels like sitting in a time machine.
Applying the time machine theory – learning from the automobile industry development
in more advanced markets – we have successfully helped Great Wall Motors in seizing
the trend of “SUV – Compact SUV – Mid-size and full-size SUV” over the past two
decades. Several brands, including Saifu, Haval and Tank etc., have been launched
and reached over 10 billion yuan sales, which leads Great Wall Motors join the 100
billion yuan club.
Great Wall Motors started its business from pickup truck in 1990s. It led the category
as No.1 in unit sales for many years. Unfortunately, in 2000, Beijing, Shanghai and
many other tier one cities began to restrict the usage of pickup trucks. This policy
spread to the whole nation swiftly. Consequently, Great Wall Motors realized that its
future would be massively and negatively impacted.
In 2002, we advised Great Wall Motors to launch the brand Saifu SUV selling at 80,000
yuan with the communications of “a pickup truck with a roof” and “a pickup truck
allowed to travel in cities”. Back then, the average retail price of SUV in China was
above 200,000 yuan, while there was a white space under 100,000 yuan. In its first
year, Saifu SUV was sold over 30,000 units. By the end of 2003, Great Wall Motors was
listed in Hong Kong Stock Exchange, the first civilian-run automobile manufacturer
from mainland China.
Illustration 1.1 Great Wall Motors Launching China’s First Economy SUV – Saifu SUV
In 2008, Great Wall Motors’ sedan business performed really poorly, which was funded
by 10 billion yuan. The monthly total number of units sold by four brands, Jinglin,
Xuanli, Lingao and Kuxiong, was less than 1000. In 2008, SUV category only
contributed less than 5% of the total automobile industry in China, but it had significant
growth. Based on the fact that China has vast size in geography and the insight that
Chinese customers are keen to save face and prefer bigger size car, we affirmed that
automobile industry in China would be in a transition from sedan to SUV, similar with
the market in the United States. Considering there were still transportation restrictions
in pickup truck, we anticipated that the size of SUV market in China might be the same
or even exceed that of the United States.
Illustration 1.2 The Development of SUV in the United States
Jeep created SUV category in 1941. The off-road performance was the most important
attribute for SUV category at its early stage. In 1989, Toyota pioneered in launching a
SUV product called RAV4 based on sedan production platform. In the following 30
years, compact SUV gradually became the mainstream segment of SUV category.
Illustration 1.3 In 1989 Toyota Introduced its Compact SUV in the United States – Toyota RAV4
Based on above insights to seize the trend, we convinced Great Wall Motors in pivoting
the direction of research and development from sedan to SUV with the aim of
launching innovative SUV products, especially in compact SUV segment, as soon as
possible.
In 2009, Great Wall Motors implemented the strategy without any hesitations. They
cancelled the investment plans in sedans and transferred all resources into SUV with
the focus on compact SUV. Between 2009 and 2010, Great Wall Motors introduced its
compact SUV range Haval M1 and M2, basing on its sedan production platform. In
2010, Great Wall Motors sold 137,000 units of SUV with an annual growth rate 135%.
The company recorded revenue of 22.1 billion yuan with an annual growth 78.9%.
Illustration 1.4 Haval M1 launched in 2009
Illustration 1.5 Haval M2 launched in 2010
While Great Wall Motors was improving M1 and M2, it also focused on developing an
authentic compact SUV – the Haval H6. Launched in 2011, H6 broadened the horizon
of compact SUV in China. H6 model won the No.1 in sales unit for consecutive 10
years, and has sold 5 million units and over 500 billion yuan since its debut, becoming
the legendary No.1 national vehicle produced by local manufacturer.
Illustration 1.6 Haval H6 launched in 2011
The mid-size and full-size SUV in the United States regained the growth from 2010 to
2020 after the decline between 2000-2010.
Illustration 1.7 The evolution of mid-size and full-size SUV in the United States
Source: Automobile Industry Analysis Report in the United States
In 2020, Great Wall Motors seized the trend of rising mid-size and full-size SUV in
China, introduced the brand of Tank with an average selling price over 200,000 yuan.Within two years, Tank has achieved 200,000 units in sales and is leading the premium
SUV segment in China.
Illustration 1.8 Tank launched in December 2020
From 2002 to 2022, Great Wall Motors succeeded in seizing the trend of SUV category
evolution in China. The company revenue grew from around one billion to 136.4 billion
yuan, undoubtedly becoming the king of SUV in China.
Illustration 1.9 Category Evolution of Automobile Industry in China
Source: China Association of Automobile Manufacturers
Illustration 1.10 The Revenue Growth of Great Wall Motors
Source: Annual Reports of Great Wall Motors
