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Red Flag: an iconic brand gets facelift and a new lease on life

RED Flag became a faded dowager when China opened its doors to foreign automakers and ushered in the modern auto industry. In officially launching the flagship sedan H7 last month as its first new offering to the market under the old brand in seven years, FAW Auto Group is clearly trying to revive Red Flag's fortunes.

With its sticker price ranging between 299,800 yuan (US$48,927) and 479,800 yuan for five variations, with either a 3.0-liter or 2.0-liter engine, Red Flag is arguably the most expensive car ever mass-produced by a domestic brand in China.

Memories of China's top leaders riding Red Flag sedans go as far back as 1959, to the 10th anniversary of the founding of the People's Republic of China, when the brand made a high-profile debut.

Red Flag long flourished as the supplier of official cars for top leaders and visiting foreign dignitaries. In the 1980s, however, production of the brand came to a halt as foreign cars won the favor of government fleet purchases orders and as Red Flag found itself unable to compete either in energy efficiency or manufacturing costs.

The timing for a comeback is perfect. In December, Chinese President Xi Jinping, in an internal speech to party members, reportedly urged officials to switch fleet purchases to domestic brands. He is reported to have said, "It gives a bad impression if we ride foreign cars." Since the end of last year, many central agencies and provincial governments have begun heeding the "Buy China" directive.

According to FAW, the Red Flag H7 has received over 1,000 orders from governments. Last week, the model became the official choice of Chinese Foreign Minister Wang Yi.

But can this momentum be enough to turn the tide for Red Flag?

The demand for high-end government vehicles is rather limited. And Red Flag's price exceeds the current 180,000 yuan budget limit on cars for mid-to-lower level officials, which is a much larger pool of buyers across the country.

Government vehicle purchases account for only an estimated 2 percent of China's total car sales, according to Dong Yang, secretary-general of the China Association of Automobile Manufacturers. And it is no longer a market Red Flag can dominate simply with a home advantage. Newer domestic brands like the Roewe of SAIC and Trumpchi of GAC are all gearing up to make further inroads in the same market.

Starting point

Of course, the government market is a natural starting point for Red Flag's revival because it is "concentrated and easy for marketing and services," according to Zhang Xiaojun, general manager of FAW Car Sales Co.

The company said it has high hopes that the example set by government will spill over into private consumption. It's much the same strategy adopted by Audi on its road to achieving success in China.

"Red Flag's major market is on the consumer end," said Zhang. "Only through brutal competition with BMW, Mercedes-Benz and Audi can it truly revitalize its name."

That is certainly a very daunting challenge. The Red Flag H7 seems to have a price advantage in its head-to-head battle with the BMW 5 Series, the Mercedes-Benz E Class and the Audi A6L, whose prices start from at about 400,000 yuan. But the model's cost-effectiveness, given its specifications, is actually below even that of the rival Toyota Crown, which fails to impress Chinese consumers these years due to its pricing.

When it comes to design, Red Flag's somewhat stodgy styling clearly is out of touch with China's mainstream buyers of luxury executive sedans. They crave modern sportiness.

Poor forerunner

Playing the nostalgia or patriotism card did not prove successful with Red Flag's HQ3 model that hit the market in 2006 as a forerunner of the brand's revival. Poor sales showed that a glorious past can be an albatross around the neck of a brand that needs to sacrifice some of its pride in order to position itself smartly in the auto market of today.

FAW reportedly spent 6.6 billion yuan developing new Red Flag models and building a manufacturing site. Making money is apparently not the top priority for the moment.

The company said it plans to invest 10.5 billion yuan in the five years to 2015 to re-raise the Red Flag, with two sports utility models, a commercial model and a mid-size limousine model set for roll-outs in the next five years and 12 Red Flag exhibition centers to be added to the current nine across China.

Taking stage center in the showroom must be the Red Flag H7. It was developed by FAW independently, from concept to the engineering design phase, and is being hailed as a breakthrough for a brand that used to depend heavily on foreign platforms.

But if the whole exercise is about recouping past glory without improving the brand's worth in the market, the Red Flag revival will come at an unbearably high price indeed.




 

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