Chinese brand shooting to expand to 200 dealers
Over a plate of chicken wings and water (no ice) for lunch, Mr. Guogui Lai talked with excitement about the past, present and future of CFMOTO. Mr. Lai has every reason to be excited. His company — yes, he owns CFMOTO Power Co. Ltd., the parent company of Minnesota-based CFMOTO Powersports — has made tremendous gains in 2012, both domestically in China and abroad.
Mr. Lai has made strides on the American culture front as well in 2012. His blog recently included a post about his trip to the Gateway Arch in St. Louis, in addition to finding a tasty plate of wings in Arkansas while visiting dealers on a four-day southern circuit.
Mr. Lai established his motorcycle and ATV manufacturing business in 1989, and holds the titles of president of Chunfeng Holding Group Co., Ltd. and chairman of the board of Zhejiang CFMoto Power Co. Ltd. And while his titles are lofty, his down-to-earth demeanor has helped him grow the business to its current state in Hangzhou City, Zhejiang Province.
With interpretation provided by Ivan Tan, Mr. Lai’s traveling secretary, Powersports Business learned more about CFMOTO Powersports, the exclusive U.S. distributor of CFMOTO.
PSB: What is the situation with the patent violation lawsuit that Polaris Industries has filed against CFMOTO?
Mr. Lai: The lawsuit has a temporary stoppage right now. Both parties have agreed to that. We are confident in dealing with this issue with Polaris and we look for a good relationship. As for the details, it is business confidential and we are not able to talk about the details. We are standing on the optimistic side and we are cooperating with Polaris.
PSB: Could you provide an update on the lawsuit that CFMOTO filed against the U.S., U.S. Department of Homeland Security, Customs and Border Patrol, and the EPA in January 2011? The suit arose from seizure in April and May 2009 of several hundred vehicles that were said to have been in violation of the EPA’s Clean Air Act.
Mr. Lai: This lawsuit is resolved and everything is clean. This lawsuit is kind of a reminder or warning to us because before we were not quite familiar with the U.S. market. But after this case happened, we know the laws in America. Now we do everything according to the American regulations and law. We do everything according to the requirements.
PSB: What should our readers know about the company’s manufacturing plant in China?
Mr. Lai: First, the location is in Hangzhou City in Zhejiang Province in China. Maybe you have ever heard of Hangzhou City? It is a very beautiful city. In China, there is a saying, ‘At the top, we have heaven. And not very far below that, we have Hangzhou!’ We have more than 1,300 employees and the facilities are over 200,000 square meters. There are two production lines for 4-wheelers, and also we have two 2-wheeler production lines. Usually, the employees work eight hours a day, but that is based according to the orders. For example, if we cannot finish an order in a certain time, we will do some extra jobs. Also we have three painting lines. And we also have frame mounting lines and three engine production lines in addition to the machine plant. The plant has an annual production capacity of 800,000 engines and 600,000 vehicles.
PSB: Does the factory operate 24 hours a day?
Mr. Lai: Some lines do. For example, the painting line is automated and running 24 hours. The assembly line is man’s work, we say, and we add to the line when the orders require it.
PSB: Describe the company’s growth over the recent past.
Mr. Lai: The Hangzhou plant came into production in 2006. In 2008, we were influenced by the global financial crisis. From 2009 to 2011, we have had a 50 percent increase in sales. From January to April of this year, we have had a 64 percent increase in sales compared to last year, and the biggest increase came from the 4-wheelers — big displacement engines.
PSB: How would you describe the ATV market in China?
Mr. Lai: For the China market, it’s just the start of the 4-wheeler market. Mostly they are being used for recreation, for fun.
PSB: How many ATV manufacturers are there in China? How many players are in the 4-wheel marketplace?
Mr. Lai: Before the year 2008, maybe there were 20-30 manufacturers. That’s many. In 2011, there are not many left, just a few left. According to the calculations by the industry community, CFMOTO exports more than one-third of the Chinese volume of 4-wheelers to foreign markets. In sales volume, we take two-thirds of the market. We are No. 1 in 4-wheelers in China. During the global financial crisis, a lot of small 4-wheeler manufacturers have gone away.
PSB: Why is CFMOTO situated at the top of the Chinese ATV market?
Mr. Lai: First we would need to talk about the product. Every year, our R&D department comes up with one or two new products. For the 4-wheelers, we have 500, 600 and 800cc engines. We have a very good engine platform. In a few years, maybe one year, we will have a 1,000cc model. In European countries, we have selected very good importers, for example, in Russia, Sweden, France, Germany. We have very good importers. Their aftersales service and their sales network is very good for the customers. Also we have very good pricing. So the price is reasonable and quality is competitive with other products, so the importers also have a quite good profit margin. Another thing is the brand. We can see from the beginning that we have built the brand. We input our company culture into the brand.
We have sold our products to OEMs in recent years, just a few percent. But for 99 percent of the vehicles that we produce, we use our own brand, CFMOTO. That way, the importers, the dealers, the customers, trust the CFMOTO brand. Every year since 2004 we have increased the 4-wheelers sales, excluding of course, the financial crisis. So we can conclude that we have a quality product, with the proper sales network, importers, strategy and price.
PSB: CFMoto does produce some products for other brands?
Mr. Lai: We only provide vehicles for a French company, Goes.
PSB: You have deep roots in Europe as a top export destination for your ATVs. Could you provide some insight into how your reach extends into those markets?
Mr. Lai: In foreign countries, in the ATV segment, we have some of the biggest customer groups. The market share in Russia is 30 percent; in Sweden we’ve got 15 percent, in Australia 5 percent. Also, Austria 20 percent, in Germany we have 5 percent. In Canada we have 5 percent, Italy’s 10 percent and Poland is 8 percent.
PSB: What’s the breakdown of 2-wheel sales vs. 4-wheel sales for CFMOTO?
Mr. Lai: Total production by CFMOTO, 2-wheelers plus 4-wheelers, is 30,000 units per year, not including exports. The sales volume in the domestic market is stable in recent years. Because we are CFMOTO, in this industry, we are different from other motorcycle companies. We do something special and different. In China, the other motorcycle manufacturers produce vehicles with displacement under 125cc. We are CFMOTO, and we have 150, 250 and also 650cc motorcycles. Our product is different from the others.
PSB: When did CFMOTO Powersports form?
Mr. Lai: Our products began to come to the U.S. market in 2002 and we built CFMOTO Powersports in 2007.
PSB: Why would dealers in the U.S. be interested in carrying the CFMOTO brand?
Mr. Lai: Many years ago, when CFMOTO decided to develop 4-wheelers, we especially based on the U.S. market. That is why we developed 4-wheelers. But after we did some research on the U.S. market, we found a lot of strong competitors, for example, Polaris, Arctic Cat, BRP and also the Japanese brands. They are all very strong competitors. At that time we thought our chance was not very good to enter the U.S. market, especially for the 4-wheelers. So at that time, from about 2005 to 2009, we focused on the European market. We developed fashionable products that are suitable for the European customers. We went to the European market and had great success. We can see the dealers have very good profit margins because of our success there.
During that time, from 2005-09, the UTV and ATV market was just beginning in Europe. So after many years in the European market, we’ve got a lot of experience and we learned a lot from that market. So in the U.S. market, what we learned from the European market will help us achieve high success. For example, in the aftersales service, in the quality, we want to make the distance smaller between our competitors, especially in the U.S. market. We also have some advantage in the R&D because we’ve found in the U.S. there are many people who like sports and recreation, and we wanted to bring more products to the American people with lower price but good quality to make more people enjoy the sports fun from our products. CFMOTO prices are not as high as our competitors. Not all the people are rich people. Our price is lower but the quality is strong. We want more people who are not so rich to enjoy the fun of ATVs.
PSB: What are CFMOTO vehicles known for? How do your biggest fans describe them?
Mr. Lai: The first point is that we have good products with quality engines. We develop all the engines by ourselves. With so many years of development, we have formed our own product style, especially the appearance. They’re good looking vehicles. The second point is our quality is guaranteed. No. 3, we have trust from the customers, and No. 4, we also have a good price. That means compared to other products, we have good price and good quality. Maybe the last but not least, we have a very good relationship with our importers and dealers. We work hard to protect our dealers’ interest and help them provide better service for our customers.
PSB: CFMOTO Powersports — the U.S. operations — is under new management. How will dealers notice the change in management?
Mr. Lai: Before the year 2010, in the U.S. market we focused on the 2-wheelers. But after the start from last year, we changed to focus on 4-wheeler. A good team is very important for the company to develop and increase. We want professional people to lead our growth. The new general manager, Adam Tan, has so many years working in Europe. He is Taiwanese and also can speak Chinese in addition to English, so there’s no communication problem.
PSB: Parts availability for CFMOTO has been a concern for dealers. I understand that walls are being knocked down for expansion at the CFMOTO Powersports headquarters in Minnesota. Can dealers expect something different in terms of parts availability?
Mr. Lai: Of course the parts are very important to customers and dealers. The first thing we wanted to do was give the dealers a technical guide to help them deal with repair issues. No. 2, yes we have expanded our headquarters here to get a larger warehouse. We wanted to make our complete line of parts available in the U.S. to guarantee this will meet the needs of dealers. We will also have a training room at our headquarters, and we will be asking dealers and service staff to come here to get more knowledge about our parts and products.
PSB: Some dealers are not quite ready yet to pick up a brand based in China. How could you convince them that CFMOTO is different than what they are used to?
Mr. Lai: The reason we came to the U.S. was to show dealers and customers a quality Chinese product and manufacturer. Dealers want to provide good customer service, and we’re helping do that with our new expansion. We are not in the U.S. to just make unit sales; we are here with parts and service support as well. We are here and we are not going anywhere.
PSB: What is your current number of dealers in the U.S.? Do you have plans to grow your dealer base, or is the number good for now?
Mr. Lai: Right now we have about 90 U.S. dealers, but the past few years we have just focused on the 2-wheelers. Some 2-wheeler dealers are not suitable to sell the 4-wheelers, so we want to recruit more very good quality dealers. The key issue is to get more dealers, especially 4-wheeler dealers. We think around 200 dealers would be suitable for CFMOTO.
PSB: Why did you choose to get into the powersports industry?
Mr. Lai: I got into the business when I was 24 years old, and it was then that I realized you can have a lot of fun in this industry if you work hard. And now that it’s been 24 years that I’ve been in the business, I still have one goal: to help more customers enjoy the fun of powersports. In the blink of an eye, the time has passed.