China’s Love for SUVs Hits Maker of Chairman Mao’s Red Flag Limo

Updated on
  • FAW Car predicts $127 million loss on sliding sedan sales
  • SUV share of total passenger market has risen to 35 percent

The maker of Chairman Mao’s Red Flag limousine is finding it tough to compete as Chinese buyers increasingly desert sedans for SUVs.

FAW Car Co., a publicly traded unit of state-owned China FAW Group, will post a loss of as much as 850 million yuan ($127 million) for the first six months after turning a profit of 168.8 million yuan in the year-earlier period. The company’s sedan-heavy lineup has performed poorly as consumers favor sport utility vehicles for their higher ride and roomier interiors.

“The company’s products are concentrated on sedans, and the segment has slowed down even as overall passenger-vehicle sales maintained steady growth in the first half,” the Changchun, China-based company, which also produces vehicles with Mazda Motor Corp., said in a statement to the Shenzhen stock exchange. “Sales have also declined in line with competitiveness given the aging models. In the second half, the company will strive to accelerate the introduction of new models and try its best to increase sales.”

Demand for SUVs has been rising as increasingly affluent Chinese buyers opt for more spacious vehicles, a trend that may continue with the scrapping of the country’s decades-old one-child policy. The introduction of cheaper SUVs has also forced automakers to cut prices on sedans, crimping profit margins.

SUVs accounted for 35 percent of total passenger-vehicle sales in the first six months, compared with 27 percent in the same period a year earlier, according to Passenger Car Association data. Sales of SUVs surged 45 percent in the period, outpacing the 9.5 percent gain in the broader passenger-vehicle market. Sedan deliveries, by contrast, fell 3.1 percent, outpaced in decline only by mini-commercial vans.

FAW, whose predecessor First Automotive Works was started in the 1950s to spearhead the development of an auto industry in China, produced the first Hongqi, or Red Flag, on Aug. 1, 1958. Today, it produces the L5, used to ferry senior officials, and the H7 sedan. The automaker’s other brand, the Besturn, features five main models, four of which are sedans.

— With assistance by Kongho Chua

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