BeijingFAWAutomotive0301

FAW Beijing Automotive Co., Ltd., Truck Department INTERVIEW DATE:March 1, 2000INTERVIEWER NAME:Bill HeInterviewee NameMr. Ding ChangliPositionManager Company and AddressHaidian, BeijingTelephone/Fax010-88125729Backgroundn FAW Beijing Automotive Co., Ltd is a joint venture between FAW and Beijing Yuyuantan municipal government established at the end of 1997. FAW owns 51% and the equity and Yuyuantan municipal government owns 49%. This joint venture has several lines of business. Its truck sales business is doing fairly well while its manufacturing business is struggling. Overall, this company is losing money. According to a recent board meeting, FAW wants to get rid of its equity share in the company.n Truck sales of the company was 756 in 1998 and 750 in 1999. Truck sales revenue was about RMB 70 million in 1998 and 1999 respectively. Annual gross profit of truck sales business was about RMB 1 million and annual net profit of truck sales business was about RMB 700,000.n The breakdown of truck sales in 1999 was 300 light trucks, 300 medium weight trucks, and 150 heavy weight trucks. The most popular model was CA1110PK2LH.n The price they get is A network price minus 3%. They sell to second-tier dealers and end users. The price they sell to end users is the price they get plus 1 1.5% plus freight. The price they sell to second-tier dealers is the same price they get, or even less 0.5% in some cases, plus freight. In those cases, they only make profit on the 1% year end rebate from FAW.n The truck department of the company has 6 employees and they all have sales responsibilities. The salesmens compensation is similar to other companies.n They are “Four-in-One” dealer already. FAW Beijing Automotive Co., Ltd. owns the FAW fourth Service Station in Beijing. The service station sells parts, too. In 1999, parts revenue was RMB 2 to 3 million and net profit was about RMB 400,000. Service net profit was about RMB 500,000 in 1999. They think the profit margin of selling new trucks will continue to be squeezed in years to come. They have to make profit on parts sales and service in the future.n Unlike the situation we saw in Baotou, FAW paid service is not profitable in Beijing. On the other hand, the customer paid service is more lucrative in Beijing. However, the FAW paid service is a lost leader for them to build service business. After end users tried their service through FAW paid service, end users got to know the service station, satisfied with their service, and came back for future services.n Mr. Ding is very optimistic about Jie Fang trucks future after Chinas accession to the WTO. He think Jie Fang has the right products for the Chinese market and Jie Fangs pricing advantage will sustain in front of the foreign competition. Key Issuesn They view themselves different than most other dealers. They think they are FAW in Beijing. They think their first priority is to sell Jie Fang trucks and gain market share for FAW in Beijing. Thats why they sell trucks at below their cost in some cases.n In 1999, FAW provided truck inventory worth RMB 5 million to this company. With the prospective of FAWs departure, it is fair to say that FAW will not provide such inventory any more. And this companys sales could be impacted because they will not have samples to show to potential customers.n Technical support from FAW has problems, especially for new products. Sometimes, new model arrived dealers warehouse without manual. Sometimes, dealer sold the new model and only realised later that FAW didnt send their the new parts. And they couldnt serve the end-users because of lack of parts.n FAWs plan with this joint venture is always a big uncertainty. Conclusionn This company is the only “Four-in-One” dealer of Jie Fang trucks today in Beijing. They are professional and have extensive knowledge of the truck market. No matter what FAW decides to do with its equity in the company, this is a good dealer worth keeping.2