Expenses Soar as China's Biggest SUV Maker Seeks to Go Upscale

  • Great Wall posted 18% decline in first-quarter net income
  • Operating expenses surged 17% on new WEY brand, pay raises

Great Wall's Haval H6 SUV.

Photographer: Qilai Shen/Bloomberg

Great Wall Motor Co. Chairman Wei Jianjun’s bid to elevate the Chinese SUV maker into the ranks of premium car brands is coming at a cost.

Operating expenses soared 17 percent in the first quarter to 21.1 billion yuan ($3 billion) on higher advertising, labor and research costs, according to the Baoding, China-based company’s filing to the Shanghai stock exchange. That led to the SUV maker to post the lowest quarterly profit since the three months through December 2015.

Wei, who adopted the English name Jack Wey on the advice of branding guru Al Ries, is gunning for a slice of the premium SUV market now dominated by foreign brands like Land Rover and Jeep. He introduced the new upscale WEY brand, named after the anglicized version of his family name, last year and began sales of the first model at the Shanghai motor show this month.

Wei Jianjun. Photographer: Calvin Sit/Bloomberg

Wei Jianjun.

Photographer: Calvin Sit/Bloomberg

The higher costs from promoting a new brand coincided with flagging sales of its flagship Haval H6 SUV, which is due for a revamp this year. Deliveries for 2016’s top-selling SUV fell about 1 percent in the first quarter. The company also handed out pay raises and adjusted its bonus structure to improve staff loyalty, it said.

“It’s a transitional period with models like the H6 being on the market for quite some time,” Xu Hui, board secretary for Great Wall, said by phone. “The new products like WEY and the new H6 have yet to contribute to the company’s bottomline.”

Great Wall’s profit margin fell by 0.6 percentage point from a year earlier to 24.6 percent in 2016, according to the company’s annual report. Profitability for the industry has declined for three straight years through 2016 as foreign carmakers slashed prices on their sedan models in response to the popularity of entry-level SUVs, according to the China Passenger Car Association.

Like other companies, Great Wall also faces higher spending on research and development as it complies with stringent fuel-economy requirements due to kick in gradually from 2020. The automaker is developing an all-electric sedan and hybrid SUV, while working on lightweight models for traditional combustion-engine vehicles to lower fuel consumption.

— With assistance by Ying Tian

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