Why does Great Wall Motor's profit fall?

For the auto industry, this is a slack season for big news, so car makers have attracted the most attention from the performance test, and after sales, it has come to profitability. This time, the most unexpected change is Great Wall Motor’s net profit expectations.

“Great Wall profit has lost half!” After the publication of the Great Wall 2017 Interim Results Bulletin, the industry has no shortage of such voices. Indeed, in this round of market changes, Great Wall Motors did expose problems such as a decline in risk resistance and a reduction in product strength.

However, "Why is it falling? What kind of level is it after falling? Is it going up or falling?" I am afraid it is not a single word.

After the "waist" is still a profit master

On the evening of July 21, Great Wall Motor released the interim performance report for 2017. The financial report shows that in the first half of this year, Great Wall Motor’s total operating revenue was 41.26 billion yuan, a year-on-year decrease of 1%, while net profit was 2.501 billion yuan, a 49.42% drop from the 4.928 billion yuan in the same period last year. The net profit attributable to shareholders was 2.492 billion yuan, also down 49.42% year-on-year.

In the usual sense, "net profit" refers to "net profit attributable to shareholders". Since the decline is close to 50%, many media have used the title of "Great Wall Motor's profit" as a headline.

However, even if the Great Wall Motor's profit level is cut in half, it still ranks among the top car makers of its own brand. This point is rarely mentioned by the media.

Since most car makers have not provided profit figures in the first half of 2017, and Great Wall is the expected number announced by the car companies represented, the daily car has selected 2016 results for analysis.

Among the listed car companies, the top five Chinese car companies with top revenues and profits are SAIC Motor, Dongfeng Group, Great Wall Motor, Changan Automobile and Geely Automobile (only Geely Automobile Holdings Limited, non-Geely Holding Group, not included). Volvo Cars) In the “attribution to shareholders’ net profit” indicator, in 2016, the five companies reached RMB320.09 billion, RMB14.465 billion, RMB105.51 billion, RMB102.85 billion and RMB5.170 billion, respectively. 3 people.

From the year-on-year increase, Geely’s 125.9% is undoubtedly the highest, followed by the 30.92% of the Great Wall. If we examine the profitability level, only Dongfeng, Great Wall and Chang'an will exceed 10%, and 10.70% of the Great Wall will also be ranked 3rd.

However, SAIC, Dongfeng Group, and Changan Automobile all have a large number of joint ventures. Most of the joint ventures are foreign-owned companies. The joint ventures and joint ventures have contributed greatly to the profit in their statements. Looking back at the Great Wall and Geely, the former has no profit contribution from associates and joint ventures, while the latter is a loss. If you dehydrate this part of your profits?

After “dehydration”, it is not difficult to find that the original profit king SAIC Group had only 4.257 billion yuan, and the profit rate was only 0.56%. Dongfeng and Changan were similar. The Great Wall remained the same as the original, while Geely slightly increased to 5.179 billion yuan and 9.64%. Of course, the calculations here are for reference only, and joint ventures and joint ventures are not only joint venture companies, but also joint ventures with domestic companies.

We can draw a conclusion: In the autonomous auto business segment, Great Wall Motor is the undisputed leader in domestic profits. If the profit is cut in half in 2016, it will be equivalent to Geely Automobile and it will still be among the top car makers.

Why does the Great Wall achieve this level of profit? From the aspects of high profitability of SUVs, ability to control product costs, channel capabilities, etc., the ability of the entire system of the Great Wall provides guarantees for high profits, and objectively the SUV boom in the auto market has played a key role. This is why the Great Wall is often able to win a place for autonomous car companies in such places as Fortune 500 and Forbes brand value.

However, in any case, the profits of the Great Wall in the first half of this year were stricken. What are the reasons behind this deep-seated reason?

SUV market changes eaten profit

Regarding the big drop in profits, Great Wall Motor officially gave three reasons. In the first half of the year, the company made profits through the purchase of cars and other activities such as red packets, and promoted existing products, which affected the level of revenue and gross profit margin. Secondly, Great Wall Motors stated that the company has promoted brand and product promotion through the Internet, television, and outdoor tired media, resulting in an increase in advertising fees. Finally, in order to continue to increase the competitiveness of SUV products, the company continued to increase R&D investment, but only increased R&D expenses.

In the view of “Daily Car”, Great Wall Motor’s explanation is fairly reasonable. This drop does expose the issue of Great Wall’s declining ability to resist risks and diminished product strength advantages. Although Great Wall Motor has also changed in response, it needs to be more systematic. Formulate long-term plans for research and development, production, marketing and other aspects.

First and foremost is Harvard's car sales.

This measure is due to the market downturn, H6 replacement considerations. The 2016 purchase tax policy dividend gradually faded and consumer spending was overdrawn, leading to an overall slowdown in the overall auto market in the first half of this year. In particular, self-owned brand models under 1.6L and below were the most affected, including Haval’s main model Haval H6 and Haval. H2 is in this range. In the first quarter of this year, sales of Haval H6 and H Havel H2 all showed declines in different degrees.

"Daily Car" reporter learned that, due to the increase in the end of last year, the increase in the volume of sales, coupled with low sales, in the first quarter of this year, Great Wall Motor dealers generally have a significant increase in the value of inventory, the status of the press warehouse is serious. In order to promote sales growth, Great Wall Motor launched a one-billion-a-year red envelope promotion with a price change.

From the model iteration level, since 2010, the Great Wall H6 has maintained a small one-year change status. Until the Shanghai Auto Show in April this year, Great Wall Motor launched a new generation of Haval H6, the addition of new models makes dealers need Eliminate old Haval H6 inventory. It is understood that, at present, the inventory liquidation of the old H6 has been basically completed, the dealer inventory value returns to normal.

However, from the market point of view, this also reveals the weakness of Haval - the market's ability to resist risks and product. In the first half of this year, the sales volume of China's SUV market was 4,526,700 units, a year-on-year increase of 16.83%, and the growth rate has obviously declined. In the first half of 2016 and the first half of 2015, this increase was 44.26% and 45.94%, respectively.

Followed by Haval, which is the sole kingpin product of the SUV, the slowdown in the market, Great Wall Motor must maintain its sales volume in order to reflect its risk, and it also reflects Haval's risk resistance in the downturn. The ability is not strong, and the lack of product power.

On the other hand, other brands of the same class, Guangzhou Automobile Chuanqi GS4, although also affected by the slowdown in the market has declined, but in the absence of price for the case of the vehicle, sales rose in March and April, reached in June 31,337 vehicles. In the same situation, Geely’s Bo Yue, sales in six months have hardly been affected by the fluctuations of the big market, and the sales volume has been stable at more than 20,000.

Double-edged sword: left-handed marketing, right-handed development

If we say that the market is resistant to risks and the shortcomings in product strength, the Great Wall has no reason to explain and can only choose to make progress. Then investing more in advertising and research and development is a double-edged sword: affecting performance in the short term. The long-term is beneficial to the entire business, but it needs to grasp many details.

The industry generally says that "the Great Wall does not advertise." In 2016, the Great Wall profit reached 10.551 billion yuan, but the marketing cost was only 200 million yuan. However, this situation changed in 2017.

From this year onwards, Wei Jianjun, who has always failed to attach importance to publicity and marketing, has decided to focus on marketing. The promotion of brand and product through the Internet, television, and outdoor media has resulted in an increase in advertising expenses. In particular, when the high-end brand WEY was launched, it changed the word-of-mouth marketing of the past and hit a big billboard. From high-speed railway stations, airports to print ads, and Wanda showrooms, Great Wall Motors has completed a large-scale promotion in a half-year period with a lightning-fast trend. This has led to a substantial increase in marketing expenses.

Of course, this approach is understandable, because in the promotion of high-end brands or high-end models, so that consumers understand the product and know the brand is a top priority, Wei Jianjun did not want to repeat the H8 and H9 mistakes in WEY body. From another aspect, it can also be seen that the part of the cost of Great Wall Motors’ high-profit bicycles is actually no marketing and no advertising.

Now that word of mouth marketing has failed to achieve results, it must spend more energy and financial resources to achieve advertising marketing. It is also a passive move of Great Wall Motor in marketing, and it also reflects the lack of systems in the marketing system of Great Wall Motor. And long-term planning.

Left-handed marketing and right-handed R&D are two indispensable links for contemporary car companies. In order to continue to increase the competitiveness of SUV products, continuing to increase investment in R&D leads to increased R&D expenses. It is understood that Great Wall Motor’s independent research and development capabilities have also been controversial. In the past, Great Wall Motor used a process of reverse development for a long time, which greatly reduced the development cost and time, but it also led to certain matching problems.

For example, the repeated tuning of the Haval H8 with high-spec accessories is still a problem, mainly because of the lack of R&D strength. Great Wall insiders once revealed to the “Daily Automobile” that Great Wall Motors has invested a lot of R&D strength in the control of costs, and the technologies that cannot be developed are usually purchased or jointly developed.

Nowadays, the market competition is fierce, and the advantages of existing product forces have begun to gradually decrease in the market. Wei Jianjun also invested more in research and development. Wei Jianjun has publicly stated that by 2020, Great Wall Motor will invest 30 billion yuan to create a global R&D system, which is one of the reasons for the decline in profits.

In the first half of the Great Wall's profits, Geely Automobile issued an announcement saying that in the first half of 2017, the company's net profit increased significantly, which was an increase of more than 100% from the same period last year. The increase in company performance was mainly due to a significant increase in sales during the period, which represented a significant increase in overall sales and improved product mix.

The figures are not as simple as the surface looks. Overall, whether it is marketing or research and development, is to consolidate the strength of the brand and product, so that companies can develop more sustainable in the long term. The investment in these areas cannot be used as a reason to look down on the Great Wall prospects based on profitability.

However, how to put these inputs into practice and choose the right direction, the Great Wall still needs careful consideration. It is obviously not enough to rely solely on coping style changes and "paying money." Great Wall Motor also needs to formulate plans for R&D, production, and marketing in a more systematic way. Because of the current market, competition is not just a product, and the establishment and good operation of the system are more important.