BYD in China – Is the Dream Over?

Build Your Dreams (BYD) was the great hope of the Chinese auto industry, moving quickly from smart young upstart to major player in the blink of an eye. This was mainly thanks to Warren Buffet’s visit to China where he singled the company out for praise and vision, and then proceeded to buy 20{ab662c498d58e1b7b34d33fa34ec831686a9fe77d0ca7e950f839577e113f39a} of their stock. Two years later it looks like the world’s most successful investor may have called it wrong, and is even rumoured to be considering dumping his investment.

There’s no denying that BYD have at times been innovative, in a market where innovation is a rare commodity. They were the first Chinese company in the motor trade to consider an online sales model for example. But it appears they’d forgotten the basics in their rush to tread new ground.

BYD dealers have found themselves in a world of hurt, their forecourts packed with unsold vehicles which they were required to keep stocking even when it became clear that consumers weren’t buying. Not content with this, it turns out the company has been leaning on dealers margins heavily too. They’ve limited the returns their sales force can earn, crushed the value in servicing and parts (margins that China’s ultra-competitive car market relies on to pay dealers fair value as new car sales are often reduced to 3{ab662c498d58e1b7b34d33fa34ec831686a9fe77d0ca7e950f839577e113f39a} or less in profits thanks to a surplus of dealerships fighting over the same commissions), and worse it turns out they’ve actually been paying their dealers in… cars.

That’s right the same cars, they couldn’t sell in the volumes required by their contracts. The rest of the industry has been shocked by this revelation; it’s a model that was abandoned by all the other major manufacturers years ago – mainly because it bankrupted the sales channel.

BYD appeared to be in combative mode early this year when they slashed forecourt pricing on all their major ranges, but it doesn’t seem to have had the desired effect. There are now serious rumours of major layoffs at head office and in distribution, usual signs in the Chinese economy that things are very bad indeed.

It’s a shame really, because Build Your Dreams was considered the brand to emulate in China. A symbol that new and creative companies could claw their way to the top based on talent alone. We hope that their former approach to innovation can help them get back to the top of the heap, but at the moment it appears that the dream really might be over.

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