BYD Exec Reveals U.S. Strategy

Stella Li:

Stella Li, BYD's senior vice president, said in an interview in Shenzhen, China, that the company drove dealers in China hard to attain its unrealistic sales goals, alienating some of them. "Now, we need to slow down a bit and adjust our strategy," she said.


To start with, BYD this year is forecasting a modest 10% increase to about 550,000 vehicles, more or less on par with the 10% to 15% growth seen for the overall China market by most auto makers and forecasting companies.


According to Mr. Wang and Ms. Li, one main cause was the slide in BYD car quality and appeal, at least as they are perceived by consumers. Said Mr. Wang: "Over the next few years, we are going to slow down our growth pace and focus on the quality and design of our product."


"We're starting to watch dealer inventory cycle very closely now" so that BYD doesn't have to require dealers to carry large stock, Ms. Li said. "We do not want repeat this kind of mistake in the future."



BYD critics also point to the company's lack of profit as a major cause for concern. When I discussed this with Mr. Lin, he said it was not the right time to focus on profit. BYD had aimed to get its product out in the market and demonstrate its durability. There have been a number of deals which the company has struck with local Chinese governments for taxis, buses, and police cars. These weren't aimed to be huge money-makers, he said, but to show future consumers how well the car performs from heavy users.


There has been much in the news lately about Beijing's restrictions on vehicle licenses in the capital to control pollution and congestion. Recent IPO and Beijing car dealer Lentuo International(LAS_) has been hit hard by this news as investors have been concerned that there will be fewer auto sales locally as a result. Mr. Lin said that Shanghai had had such restrictions for a while and the Chinese auto market has kept growing. The big opportunity, he said, for all auto companies is growth outside the major Chinese cities.



Wang Chuan Fu:

BYD will slow new-product cycles and take more time to buff the quality and styling of new cars, BYD Chairman and founder Wang Chuanfu said in an interview on the sidelines of the Detroit auto show.


BYD also plans to slash the number of dealers, which totaled about 1,000 at the end of last year, by 5% to get rid of inexperienced stores, according to Mr. Wang. The move is also hoped to improve per-store revenue and profit.


Moreover, BYD plans to do a better job forecasting demand and focus more on "quality of sales" rather than "obsessing on market share," the BYD chief said.


"In the past few years, we made a mistake of focusing on growth too much," said Mr. Wang. For example, BYD was too optimistic about Chinese consumers' appetite for its cars, and "we expanded our distribution channel too quickly and ended up focusing on the quantity rather than the quality of the dealer network," he said. The result: BYD's sales network became bloated with underperforming dealers.


Mr. Wang said BYD in early 2010 had a flood of dealer applicants, and the number of its stores was to hit 1,200. When sales began cooling midyear last year, some of those applicants withdrew, while others defected to other brands. In total, Mr. Wang believes about 100 dealers left BYD because of the turmoil.


Michael Austin:

At this year's North American International Auto Show, Michael Austin, the VP of BYD America, told Benzinga how Buffett came to the company, and why he chose BYD over another automaker.


"I would tell you, it is that BYD wasn't like a Detroit auto company," Austin said. "We weren't. We weren't coming out of the same tub. We weren't coming to compete with Kia or Hyundai. We weren't coming here to compete on price. We had something completely different. Even our vision was not about making EVs and flooding the market with EVs. It wasn't even that vision."


Austin credits BYD's holistic vision - which includes putting solar panels on the roof of every home and adding solar panels to every parking lot - as being another major feature that attracted Buffett to the company.


"I think he was really, really keen on - even though he didn't understand the technology, he caught the vision," Austin continued. "[This is] a Chinese company that's thinking about the environment, and it's thinking about how to change China. And certainly Warren said, 'I need that in the U.S.' BYD wasn't convinced that he needed it in the U.S."


But Buffett didn't give up. "Warren pushed them a lot," Austin said. "Because the truth is, the market is in China. The market is in India next. It's never going to be in the U.S. We're going to sell, what, 10 to 15 million vehicles here. They sold 15 million in China alone! They passed the U.S. market two years ago."


To be clear, Austin says that the whole Chinese market is at 15 million automobiles a year, whereas the U.S. market is only at 11 million. In the prior year, the U.S. market was at 9 million, whereas the Chinese market had swelled to 13.


"What's the penetration for vehicle usage in the United States?" Austin questions. "Ninety-eight percent. What's the penetration in China? Six."


With 1.6 billion people, there's a lot of room for growth. "The middle class has reached 30% - 30% wants a car," Austin insists. "They don't have a dream of owning a home. Their dream is mobile. Their dream is getting a car so they can be mobile. And they'll do one car per family, that's still the goal. But one car per middle-class family is still 320 million cars yet to be sold. It would take me 80 years to sell 320 million cars in the U.S. and Europe put together. So China's the market."


But where does that leave America? Can Detroit automakers make a comeback?


"I think Detroit has the willpower," Austin said. "Detroit certainly has the manpower. They have the resources. They don't need new leadership, they just need brave leadership. And it takes some guts to say, 'I'm gonna go first in the market,' like GM (NYSE: GM) did with the EV1. You know? And it takes some guts to say, 'I'm gonna crush all those EV1s.'"


Finally, when asked if he believed that David Sokol would be Buffett's successor, Austin said that he didn't need to say that himself. "It's been published that he's a likely candidate," Austin said. "And you know, only Warren and Charlie - Charlie seems to know more about his successor than Warren knows. [Laughs] It's true! You should ask him."


References:
After Lousy 2010, BYD Has New Plan
BYD Auto Targets U.S. Debut for 2012
BYD Auto Tells Benzinga Why Warren Buffett Invested In The Automaker

BYD's Presentation at 2011 Detroit Auto Show