Jan 14, 2013 06:13 PM

Fast Expansion Hurt BYD, Chairman Says


(Beijing) -- Disorderly expansion, low quality requirements and weak brand awareness were the major problems that slowed private auto manufacturer BYD in recent years, its founder and chairman says.

Wang Chuanfu said at a January 10 press conference that BYD had completed restructuring aimed at fixing major flaws in the company's strategy.

"During the past three years, we made a sincere analysis of our problems," Wang said. "The first change is we will not focus on the number of dealerships, but quality.

BYD started as a battery maker, began making autos in 2003 and at times enjoyed annual growth of 100 percent. In 2009, it sold 400,000 vehicles, the most among China's domestic brands.
In 2010, BYD set an ambitious target of 800,000 in annual sales and began aggressively expanding its sales network. The number of its dealers grew from 600 in 2008 to 1,200 by the end of 2010.

However, the rapid expansion triggered fierce competition among dealers and hurt the company's profit margin, and it failed to meet its sales target in 2010. At the end of the year it reshuffled management and began laying off large numbers of employees.

However, over the next two years, BYD continued to suffer slow sales. In the first three quarters of 2011, it reported a 94 percent year-on-year drop in net profit to 21 million yuan. It sold 437,000 vehicles that year, down 13.33 percent from the previous year. In 2012, it BYD sold 457,000 vehicles.

Wang said the company has cut the number of dealerships to 400, and it was working to establish its brand and focus on quality. The company expected to sell 500,000 vehicles in 2013, he said.

In September 2008, Warren Buffett paid US$ 230 million for a 10 percent stake in BYD based on positive growth prospects. Within a year, the share price had shot up from the HK$ 8 that Buffett paid to HK$ 88. But the sales slump between 2010 and 2012 has dragged down the share price. It traded at about HK$ 26 in Hong Kong on January 14.

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