From：Internet Info Agency 2019-04-03 17:46:52
Author：He Lun, IIA’s Co-Chief Content Officer, Deputy Head of IIA Academy of Auto
Automobile hot topic Q&A (Ep.184)
Text：
Geely will jointly produce smart with Daimler. The Chinese media is applauded, and of course there are doubts, but most of them are private. Everything has two sides. The difference lies in the primary and secondary sides of the two sides, as well as the trend of changes or possibility. Here, let's take a look at the other aspect of the smart joint venture project.
Q: Some people say that smart is a hot potato that was picked up by Geely. What do you think?
A: For Daimler, smart is undoubtedly a failed brand. Its sales volume remains around 110,000 for years, and it has accumulated huge losses of more than 4 billion euros in the past 21 years. It is not too much to say that it is a hot potato.
Not long ago, the Handelsblatt also reported that the decision to transfer smart in 2019 will be the first major task after Daimler’s next CEO, Ola Källenius, took office. He said that for “not having experience of getting along with smart, he has no uneasiness in conscience for burying smart." And then, smart was "transferred" to Geely in the form of joint venture. Please note that the share ratio of the two companies in JV is 50:50. In addition to design, R&D, production and sales are dominated by Geely, which is the first case in China. In other words, in the context of the vehicle joint venture shares being more open and the cancellation of quantity restrictions, Daimler not only gave up the opportunity to dominate a new joint venture, but also gave most of the right to Geely, which shows that it is urgent and determined to get rid of smart.
Q: Does it mean that Geely has been pitted?
A: Not necessarily. Daimler did not sell smart to Geely, but to establish a joint venture with it. This shows that Daimler still thinks that smart is valuable, but they are really helpless. It is better to let Geely take over. If Geely make a profit, Daimler can still earn the corresponding profit. Even if smart continue to lose money, the losses will be much smaller than before. In addition, the brand is still its own, which means that he ball is in its court. Of course, jointly operating smart with Geely is also because it does have this ability. Volvo's revival, the rise of its own brand, and the success of Lynk&Co are proofs.
Geely is not a fool. In its view, smart still has some value. In addition to expanding its line-up and market coverage, it can also bring some kind of Daimler's endorsement effect to enhance its brand image. As the largest single shareholder of Daimler, Geely will also help to shape the image of “responsible shareholders” and draw closer to Daimler to pave the way for further cooperation in the future. Of course, these are all idealized states. There are many challenges that must be overcome and many uncertainties to be faced.
Q: When it comes to the line-up, some media said that after the joint venture produced smart, Geely will gradually improve its "closed loop" on its car models. Imagine a single person choosing smart when commuting, and then switching to Geely brand after marriage. If he loves fashion SUV, he can choose Lynk&Co. If he has enough budget, he can buy Volvo. If he wants to drive a sports car, Lotus can be a choice. What’s your point of view?
A: This is indeed a dreamy idea. But if smart is a so-called " premium micro-car" and luxury brand, will its owner change it to Geely after marriage? Even in the small and popular European market, such a 3-meter-long mini car is difficult to associate with premium and luxury, even if its cost and price are indeed "high-end". Over the years, Daimler has worked hard on smart, including product improvements, and even teamed up with Renault, but there was no improvement.
In China, consumers prefer long cars. Last year, 27 brands (excluding smart) sold 350,000 vehicles a year, less than 1.5% of the sales of passenger cars of 23.71 million, of which 21 were NEVs. In the same period, smart is the only imported premium micro-car, with a sales volume of only 23,000. It can be said that in the A00-class mini-car market, the space that smart can perform is quite limited. If smart launches the A0-class compact car and the A-class compact car as planned by both parties, its traditional brand image will be greatly changed. After all, smart is a micro-car in people's minds. To change people's traditional perception of smart and reshape its brand image, the cost will be expensive.
Therefore, whether smart will be succeed in China, the repositioning of brands and products is crucial. It is reported that the two sides plan to make smart "the world's leading premium smart electric car brand." However, it can be said that smart is ruined by the word “premium”.
Q: Geely is already operating 9 brands including Geely, Volvo, Lynk&Co, Polestar, Manganese Bronze, Proton, Lotus and Terrafugia. In terms of joint ventures, Geely first cooperated with Kandi Technology Group to establish a Gleagle EV with a share ratio of 50:50. Now they jointly produce and operate smart with Daimler, and the number of its brands will reach 10. Is the number too big?
A: The Volkswagen Group has 13 brands, but its revenue in 2018 was as high as $258.3 billion, which is more than six times that of Geely Holding Group ($41.1 billion, of which Geely Automobile is $15.8 billion). Toyota's revenue was higher, reaching $265.1 billion in 2018, with six brands, and four fewer than Geely. With Geely's size, to invest heavily in so many projects, it is necessary to have superior financing capabilities, and Geely seems to have done so. However, to manage these projects and brands, from the perspective of Geely's existing volume and system capabilities, I am afraid it will be quite difficult. At present, the acquisition of Volvo is quite successful. The acquisition of manganese bronze for 6 years, but no good news. The newly created Lynk&Co brand was successful in the early stage and will wait and see in the future. Polestar's first car is priced at more than 1.4 million, but how many people are willing to pay for it is still a big question. The Gleagle EV is not optimistic. Proton, Lotus, and Terrafugia still have a long way to go. Smart is in preparation. Horizontally, Mercedes-Benz, BMW, GM, and Ford all engaged in acquisitions and multi-brand operations, but these brands were sold off in the end, with the exception of Volkswagen and Toyota. This example is more in China.
But I’ve said that Li Shufu is an excellent strategist. I believe that he must have his own reasons for making such decisions that are difficult for outsiders to understand. It may include some unknown but very practical considerations. At the launch of the acquisition of Proton more than a year ago, Li Shufu’s words impressed me: “In the face of complex and arduous tasks, strong competitors and ruthless market pressure, our ability is limited. The revival of Proton and Lotus is not a smooth road. It also is not a day's work. We must have a heart-warming preparation..." This is very realistic and rational. However, the question is whether the stakeholders have enough patience and strength to come and go with you at all costs.
