At the beginning it looked like a marriage that might last long. A Chinese auto company looking for a cheap base from which to penetrate the European Union market met a country where drivers strive for cheap new cars and a businessman ready to jump into a complex business he had never been involved in.
The opening of Litex Motors, an assembly plant for China's Great Wall car models near the village of Bahovitsa at the beginning of 2012 was cheered as a restart of car manufacturing in Bulgaria. Very soon, however, it turned out that it was an expensive blunder without any prospects of making profit or sustaining production. Great Wall models were able to catch just 2.12% market share in Bulgaria, i.e. 600 cars sold annually. The assembly plant terminated production in 2016. Since the beginning of this year the company is in a bankruptcy procedure which has long been expected.
The most obvious lesson from the unfortunate venture is about the difficulties of making cars in Bulgaria where the auto industry has been fledgling at best. In Communist times, a Bulgarian factory assembled Soviet-made Moskvitch cars, limited numbers of Renault models were assembled for a brief period in the 1970s and a Rover assembly factory in Varna that opened in the mid-1990s closed doors in less than a year.
A man of many businesses
Litex Motors and its successors is owned by Grisha Ganchev, a Bulgarian businessman whose entrepreneurial career in the early 1990s could be mildly described as murky. Mr. Ganchev, who trained wrestling in the sports high school in the city of Lovech and then studied economics, started his business in the first years after the collapse of Communism. His name was often connected with the then omnipotent strong-arm groups and smuggling. Now, his main interests are in sugar and fuels, two businesses with great potential for tax evasion.
Mr. Ganchev had never owned any business as complex as car production and his foray into the automotive business was met with some dismay. Except in fuels retail, he made successful investments in a juice factory, he was active in construction and real estate, hotel management and tourism, transport and logistics, stock-breeding and agriculture, sports. He sold his most successful businesses to foreign companies, something he probably intended to do with his car production venture.
Those who enthusiastically supported Mr. Ganchev believed he was able to persuade Great Wall to invest in Bulgaria, which would have been some guarantee that the business could be successful.
Factory in the middle of nowhere
As it turned out, Great Wall was very cautious in investing in the Bulgarian venture. Litex Motors' main shareholders were Mr. Ganchev and Corporate Commercial Bank which bankrolled the company. No equity investor appeared, and probably none had been sought after, although Litex Motors badly needed marketing and auto production experience. The dependence on credits made production more expensive - 21% of the company's costs in 2013 were interest payments. With such bad fundamentals the company faced an uphill battle to make profit, which never came.
The car factory itself was situated in northern Bulgaria, far away from sea ports or highways. The location increased transport costs, but it was an emotional, not a business choice (the nearby town of Lovech is the birth place of Mr. Ganchev).
In practice Litex Motors assembled cars from ready kits with only few details manufactured locally. There were some efforts to localize more components, but they never materialized - the owners probably believed that the required new investments will come from the company's profits. Without localization, however, car production can't be very effective, the pure assemblage, especially on such a small scale, actually adds to the costs.
With cars not stupendously cheap, models not excitingly attractive and brand perception of a Chinese auto company (i.e. low quality), the locally assembled Great Walls never made it to the mass market.
The cautious approach of Great Wall is also telling. Many in Bulgaria still think Chinese businesses are some kind of a benevolent giant who could be cheated into pouring money in various risky enterprises. The Chinese company however, tested the European market, using the money and the efforts of its Bulgarian partners, and came off clear from its overseas ill-fated expedition.
Typical marketing strategy
So, what was Mr. Ganchev thinking?
Most of the 3500 or so cars sold between 2012 and 2015 went to government institutions, municipalities and state-owned companies. The state has always been among Litex Motors' main clients. Some private firms also bought cars, but not in big volumes. The Ministry of Interior chose Bulgarian Auto Industry, Litex Motors successor, to deliver 280 Great Wall H6 cars after the demise of the car manufacturer. But even with such helping hand, bad business can't survive for a long.
At the beginning it looked like a marriage that might last long. A Chinese auto company looking for a cheap base from which to penetrate the European Union market met a country where drivers strive for cheap new cars and a businessman ready to jump into a complex business he had never been involved in.
The opening of Litex Motors, an assembly plant for China's Great Wall car models near the village of Bahovitsa at the beginning of 2012 was cheered as a restart of car manufacturing in Bulgaria. Very soon, however, it turned out that it was an expensive blunder without any prospects of making profit or sustaining production. Great Wall models were able to catch just 2.12% market share in Bulgaria, i.e. 600 cars sold annually. The assembly plant terminated production in 2016. Since the beginning of this year the company is in a bankruptcy procedure which has long been expected.
