Truck-maker's ordeal in the fog of war

The Libyan conflict dented company sales, but also taught it valuable lessons

Truth, they say, is the first casualty of war. When the Chinese company ZXAuto became embroiled in a war in Africa, its biggest casualty was its business.

In 2003 the company, which specializes in SUVs and pickup trucks, received an order for 7,000 vehicles from the Libyan government, and six years later the country ordered 6,000 more.

With these orders ZXAuto made a name for itself among the world's motor vehicle makers and exporters, many of whom were looking to gain their first orders in Africa, mostly with little success.

However, in 2011 ZXAuto's charmed run in Libya would come to an abrupt end when civil war broke out in the country. Millions of television viewers worldwide would have seen soldiers riding on ZXAuto pickups, not exactly the kind of publicity the company would have wanted.

Worse still, amid the turmoil the company's sales plummeted, and today it remains badly wounded as it tries to sell its products in the country. Last year, it says, it delivered 800 vehicles to Libya.

Yet despite all that, ZXAuto has managed to remain the best-performing Chinese motor vehicle brand in the country.

The company's first foray into the country in 2003 came just four years after its founding. Its entry into what would later become war-torn Libya may well have been preordained. While the company in its present incarnation was set up in 1999, its progenitor company was set up soon after the founding of New China in 1949, a motor vehicle repairs workshop in Hebei province that had close ties to the Chinese military. These days it is a private company with factories in both Hebei province, North China, and Hubei, Central China.

Over the past 19 years, when ZXAuto company sold its first vehicles in Africa, the continent has become one of its most important overseas markets. Last year it exported about 10,000 vehicles, about 2,000 of those going to Africa. The company says its turnover from exports last year was 500 million yuan ($80.3 million) and these sales accounted for a quarter of its total sales.

"Africa is the most important overseas market for ZXAuto, and I hope that over the next three years it can contribute 30 percent of revenue to our overseas sales," says Zhang Shuhang, general manager of ZXAuto. The continent accounted for 20 percent of total sales last year, he says.

For all the pain the civil war in Libya inflicted on ZXAuto, it did have one positive effect, Zhang says: It forced the company to rethink its overseas strategies.

"Previously, we dealt mainly with governments and state companies for big orders, but now we are doing something that is a lot tougher - selling vehicles to local companies and the self-employed.

In 2013, despite continuing turmoil in Libya, ZXAuto started building franchise stores in the capital Tripoli and now has 13 sales networks across the country.

"The domestic market in Libya is 10,000 units, so we still have a lot of room to expand."

The most popular model in Africa is the Grand Tiger pickup, which has the chassis of an SUV that is higher above the ground so it can easily cross creeks and negotiate the roughest of roads.

Africans buy pickups not only to tackle such conditions, but also because the vehicles are highly versatile.

"These big open trunks can carry goods and can even carry people if required," Zhang says, adding that in Africa it is common to see people sitting in the back of pickups or other trucks.

"We are doing quite well in African because there is a lot of demand for pickups. Elsewhere, passenger cars sales far outnumber those of pickups."

Other major Chinese exporters such as Chery and Geely sell mostly passenger cars, and are not major competitors of ZXAuto in Africa.

Zhang says it is easy to turn a profit selling pickups in Africa, compared with in China.

"The margin is higher because the competition is not as fierce as in China."

He estimates that the world demand for pickups is 50,000 to 60,000 year.

"So this niche market is already big enough for ZXAuto."

Several years ago the company set a goal of 30,000 vehicles a year for export, but amidst the global economic malaise it wound back these figures.

In Africa one of ZXAuto's pickups sells for between $12,000 and $15,000, depending on the exchange rate and local import duties, the latter of which can vary widely. For instance, the import duties for motor vehicles in Angola are 60 percent, among the highest in Africa.

ZXAuto says it is still getting bulk orders from governments other than the Libyan one, including police vehicles, vehicles for the Nigerian government and the country's police, parade cars for the Kenyan president, police patrol vehicles for Zambia, and government vehicles for Tanzania.

Nigeria is among the fastest-growing markets, Zhang says. "Five years ago we exported fewer than 100 vehicles, but last year we got orders for 400."

Zhang attributes this success to its motor vehicle assembly project with a local carmaker. Under this partnership, ZXAuto provides technological support and sells parts to the local company, and the parts are assembled and sold under a local brand.

Last year the Nigerian factory was able to produce 500 vehicles, and it will eventually be able to produce 1,500 a year, he says.

It will also deliver vehicles to neighboring markets such as Angola. ZXAuto says it plans to build three vehicle assembly plants in different parts of Africa over the next few years. That entails importing car parts to be assembled from China, thus greatly reducing import duties for the company.

One of these factories will be based in Egypt, Zhang says.

"First of all, we have a traditional advantage in the Libyan market, and second, import duties for vehicles in this area are so high that we have to build them locally to reduce such costs."

East Africa is gradually becoming more important as a market for ZXAuto, Zhang says, and last year it accounted for about 20 percent of the company's deliveries in Africa, he says.

In southern Africa, Zhang says, ZXAuto is in contact with potential local partners in South Africa, Mozambique and Zimbabwe on vehicle assembly projects.

"Hopefully we can secure two vehicle assembly plants in this region in one or two years."

The secondhand market is something that is putting strains on ZXAuto. Few countries have rules that aim to phase out old cars, and used-vehicle sales are prevalent in these places. Apart from Chinese competitors, ZXAuto rivals include Toyota of Japan, whose secondhand vehicles are very popular in Africa.

"A used high-end Toyota pickup costs about the same as our new low-end vehicles, so the competition is fierce," Zhang says.

wangchao@chinadaily.com.cn

(China Daily Africa Weekly 04/03/2015 page19)