Dongfeng Xiaokang's Sales Decline Microcar "Dark Horse" Faces Challenge


Walking into the Dongfeng Xiaokang franchise store in Shanghai Minhang Beisong Road, the advertising artist Wang Baoqiang’s thick smile came. Like the spokesperson Wang Baoqiang's growing history, the micro-vehicle new army Dongfeng Xiaokang has become a dark horse from grassroots and emerged from the opponent's numerous micro-car market.

Behind the SAIC-GM-Wuling and Changan Autos, car prices eager to rush in the mini-vehicle market have swarmed. Including BAIC Group, Huachen Motors, Haima Motors, Chery Automobiles, Shaanxi Automobile Group, Southeast Automotive, and Lifan Motors, etc. have also entered the micro-vehicle field. However, in recent years, only Dongfeng Xiaokang Automobile Co., Ltd. (hereinafter referred to as “Dongfeng Xiaokang”) has successfully entered the first echelon, and it has entered a three-footed relationship with SAIC-GM-Wuling and Changan Automobile.

However, compared with SAIC-GM-Wuling and Changan Automobile, Dongfeng Xiaokang has no advantage in sales volume and dealership scale. Under the background that the total volume of traditional mini-vehicles has shrunk and price wars have been continuously upgraded, Dongfeng Xiaokang is also facing the challenge of transformation. In 2012, Dongfeng Xiaokang initiated a product transformation and upgrade strategy that led to a comprehensive transformation, and formulated a product planning plan for “traditional micro-vehicle + compact commercial vehicle + compact MPV”.

"Dongfeng Xiaokang's main products are concentrated in the low-end micro-vehicle market with relatively low prices. Whether it can be really big or not will be critical in the next 2 to 3 years." Analysts who have long paid attention to the micro-vehicle market told this reporter.

Grass roots

On September 17, Dongfeng Xiaokang released the first product "scenery" of strategic transformation in Zhengzhou. At the press conference, the news that Wang Baoqiang and his wife would jointly endorsed the scenery boiled the audience. Since 2007, Wang Baoqiang has served as spokesperson for Dongfeng Xiaokang for 6 consecutive years.

A Dongfeng Xiaokang staff member stated that Wang Baoqiang’s choice of spokesperson mainly focused on his origins and had a strong affinity for small and medium-sized self-employed individuals. In a sense, Dongfeng Xiaokang's founding history and Wang Baoqiang's common denominator are both "born as grassroots."

Dongfeng Xiaokang is a joint venture company established by Dongfeng Industrial Co., Ltd. and Chongqing Panan Group. The latter is a private enterprise. The combination of state-owned enterprises and private enterprises is quite rare in the automotive industry. Its background is: In 2002, Dongfeng Motor attempted to share a share in the mini-vehicle market and cooperated with a state-owned enterprise in Mianyang, Sichuan Province. However, due to various reasons, the project lost tens of millions of yuan; In 2003, Lu'an Group established Dongfeng Panan Vehicle Co., Ltd. (afterwards was renamed Dongfeng Xiaokang Automobile Co., Ltd.) with Dongfeng Industrial Co., Ltd. with a 50:50 peer-to-peer ratio, on the condition that it assumed debt and contributed 50 million yuan.

After the reorganization, Dongfeng Xiaokang completed the construction of the Chongqing factory and learned a large number of Changan minicar suppliers for its supply. Relying on the scale effect of Changan mini-vehicles, Dongfeng Xiaokang has a complete supplier base and a lower cost price. In 2005, Dongfeng Xiaokang's first product K07 was launched. With greater space and price competition, Dongfeng Xiaokang initially stood firm.

Brand awareness is the weakest link for the new micro-commuters. Compared to SAIC-GM-Wuling and Changan Auto, the new micro-corps are relying more on price wars to open up the situation. Dongfeng Xiaokang, Beiqi Weiwang, Chery Karui and Haima Motor have all adopted this strategy, but the changes in the market environment have resulted in very different results.

“At the time, Wuling and Chang’an all had market share of more than 40%, and the factory’s overtime and supply were also in short supply, so they were not sensitive to Dongfeng Xiaokang’s price war. This made Dongfeng Xiaokang gradually gaining a foothold in the mini-vehicle industry and gradually becoming bigger. An analyst said.

In 2008, the annual sales of Dongfeng Xiaokang reached 100,000 vehicles, and its explosive growth was after 2009. In response to the financial crisis, in 2008 and 2009, China successively introduced 4 trillion economic stimulus policies and car support policies for the countryside. The two policies drove the sales of micro-customers to surge. In 2008, the sales volume of micro-customers in China was 1.08 million. In 2009, the number of micro-customers surged to 1.944 million, and in 2010 it surged to 2.468 million.

"At that time, as long as it was a car, someone would buy it. It didn't matter what brand you had." A person from Chang'an Commercial Vehicle Company told this reporter. Compared with Chery Automobile's Kairui mini-vehicle and Haimao mini-vehicle, Dongfeng Xiaokang's advantage lies in the explosive growth of the market. Dongfeng Xiaokang has completed the channel laying and product reserves, so it can fully enjoy the market's high growth dividends.

In 2010, Dongfeng Xiaokang sold a total of 300,000 vehicles in the year with a market share of 9.2%. In the same period, the market shares of SAIC-GM-Wuling and Changan Automobile were 43.6% and 37.9%, respectively, and the three companies together accounted for 90.7% of the market share in the micro-customer market. During this period, Dongfeng Xiaokang completed the construction of the Chongqing and Shiyan plants with a designed capacity of 500,000 vehicles and established a sales network with 1,000 franchised stores nationwide.

Turning

If the policy has helped Dongfeng Xiaokang rise rapidly at an unconventional rate, policy changes will drag its further development. Since 2011, various preferential policies have been withdrawn, and the mini-vehicle market has entered a period of decline. In 2011, domestic micro-customer sales volume was 2,155.6 thousand units, down 12.5% ​​year-on-year in 2010. In 2012, the micro-customer market was slightly calm, with sales slightly increasing to 2,614,000. Consistent with the general trend of the industry, Dongfeng Xiaokang micro-customer sales volume declined in 2011 and declined to 194,100 in 2012.

It is worth noting that during the period of high growth in the market, the industry and companies are generally overly optimistic, including companies such as SAIC-GM-Wuling and Changan Micro-vehicle, which have started production capacity expansion plans. By the end of 2010, the total production capacity of the mini-vehicle industry will increase from 2 million to 7 million. Vehicles, the number of companies producing microcars increased from 6 to 20 as many. Under the declining sales volume, micro-car companies including Haima, Chery, Changhe, etc. are generally vented.

Affected by this, the price war in the mini vehicle industry has intensified. Industry leader SAIC-GM-Wuling launched three official price-cutting actions this year. Wuling's Guangguang and Rongguang's two main products have been sold for as low as 27,800 yuan and 38,800 yuan. Competitors whose brands are not dominant have had to lower the price of their cars to a lower level.

In an interview, Pang Hai, the general manager of Dongfeng Xiaokang Automobile Sales Company, bluntly stated that the profit of traditional micro-vehicles has dropped sharply. In 2012, Dongfeng Xiaokang launched a strategy of driving a comprehensive transformation and upgrading with product transformation and upgrading. At the 2013 mid-marketing work conference, Zhang Xinghai, general manager of Dongfeng Xiaokang, said that people who are increasingly wealthy have higher requirements for micro-vehicles. For this reason, Dongfeng Xiaokang has implemented a transformation and upgrade of traditional micro-vehicle products, which is embodied in micro-vehicle business. The minibuses are multiplied to meet the needs of different consumer groups.

In September of this year, Dongfeng Xiaokang launched the first compact MPV product with a price of 53,800 to 62,800 yuan. In addition to catering to market changes, Dongfeng Xiaokang’s move is to emulate SAIC-GM-Wuling and Changan mini-vehicles and increase profits through higher-priced products.

At present, Dongfeng Xiaokang has formed V, K and C series of micro-off products. Among them, the K series is the main low-end market and is also the main sales force of Dongfeng Xiaokang. In the new product list, the C37 is a representative model of micro-vehicle commercialization, and the scene that has just been listed is a representative model of micro-vehicle ride. Dongfeng Xiaokang designed the product planning pattern of “traditional mini-vehicle + compact commercial vehicle + compact MPV”, and improved the overall profitability of the company through the changes in product and sales structure. This is also an ongoing change for other rivals in the industry.



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