Times are changing in China’s car market. Sales are slowing and analysts forecast an end to double-digit growth. Fingers point at the Government, which partially rescinded a fuel subsidy on 20 June, causing gasoline prices to rise 16.5 per cent. In a Nielsen online survey of prospective car buyers in Beijing, Shanghai and Guangzhou, 25 per cent said higher fuel costs prompted them to delay purchase, and 18 per cent are considering fuel-efficient vehicles.
But fuel prices are not the sole culprit. Inflation at home and a depressed stock market - which in better days functioned as a savings vehicle for car purchases - have not helped. Even the Olympics may have dampened car sales, at least in Beijing - where one out of 10 cars are purchased - due to temporary traffic restrictions.
Yet the long-term outlook for car ownership in China is bright. Between 2002 and 2007, private car ownership grew five-fold to reach 2.3 per cent of Chinese households, according to Euromonitor. “Chinese car buyers are already mature and extremely demanding,” says TNS’ regional director of automotive, North Asia, Klaus Paur.
China’s auto industry has traditionally been fragmented, with nearly every province launching a car manufacturer to demonstrate its industrial prowess. Today, two locals - Shanghai Automotive Industry Corp (SAIC) and China First Auto Works Group Corp (FAW) - have risen from their ranks. For two decades, the Government has encouraged joint ventures with foreign makers. First came American Motors in 1984, followed by Volkswagen, Peugeot, Citroën, and Daihatsu.
The situation changed when the top 10 per cent of households passed the magic threshold - today roughly US$7,400 of income - at which private car ownership becomes practical. Car ownership became the new status symbol in Beijing, Shanghai and Guangzhou, and spread into second-tier cities. A second wave of car makers arrived, manufacturing capacity skyrocketed and vehicle prices slumped, further stimulating sales.
Passenger cars accounted for 754,000 units, or 31 per cent of the total of 2.4 million vehicles sold in 2001, according to Automotive Resources Asia. Their share climbed to 66 per cent, or 5.9 million of the nine million vehicles sold last year.
Driving the market is China’s ‘average’ car buyer. Most likely a 35-plus male, he is a first-timer who will probably forego a low-priced entry-level car produced by a Chinese legacy maker, and opt instead for a mainstream model manufactured by a Chinese/foreign joint venture. Few buyers seek financing, and most pay in cash.
Priced between Rmb130,000 (US$19,000) to Rmb250,000, middle-tier cars have proved especially popular among Chinese consumers. This segment has been growing at 22 per cent, compared to 14 per cent each for the premium and low segments. Brand recognition is low, understandably with at least 120 locally made models, and 50 makers struggling to get a foothold in the market. “In 2002, the top seven brands controlled 75 per cent of the market, but now their share has dropped to only 50 per cent,” says Paur.
Consolidation might be just around the corner. Jonathan Chajet, managing director of Interbrand China, argues: “Eventually, China will be more like the US, the world’s biggest market, where there are only three car makers. The winning companies will have a strong brand image and track record in the domestic market, and they will prove themselves as an exporter. The others will become parts suppliers.”
Two likely survivors are SAIC and FAW. Both build middle-tier vehicles through joint ventures. To escape the crushing competition, SAIC is testing the premium segment with its Roewe 750, and in June it rolled out its Roewe 550. FAW has taken a similar approach with its Red Flag sedans. And the good news for marketers is that brand will become more important than ever. “Today, cars are more of a status symbol than a necessity,” says Chajet. “In a society of 1.3 billion people, and cities pushing 20 to 25 million, standing out is hard. Cars help you stand out.”
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But fuel prices are not the sole culprit. Inflation at home and a depressed stock market - which in better days functioned as a savings vehicle for car purchases - have not helped. Even the Olympics may have dampened car sales, at least in Beijing - where one out of 10 cars are purchased - due to temporary traffic restrictions.
Yet the long-term outlook for car ownership in China is bright. Between 2002 and 2007, private car ownership grew five-fold to reach 2.3 per cent of Chinese households, according to Euromonitor. “Chinese car buyers are already mature and extremely demanding,” says TNS’ regional director of automotive, North Asia, Klaus Paur.
China’s auto industry has traditionally been fragmented, with nearly every province launching a car manufacturer to demonstrate its industrial prowess. Today, two locals - Shanghai Automotive Industry Corp (SAIC) and China First Auto Works Group Corp (FAW) - have risen from their ranks. For two decades, the Government has encouraged joint ventures with foreign makers. First came American Motors in 1984, followed by Volkswagen, Peugeot, Citroën, and Daihatsu.
The situation changed when the top 10 per cent of households passed the magic threshold - today roughly US$7,400 of income - at which private car ownership becomes practical. Car ownership became the new status symbol in Beijing, Shanghai and Guangzhou, and spread into second-tier cities. A second wave of car makers arrived, manufacturing capacity skyrocketed and vehicle prices slumped, further stimulating sales.
Passenger cars accounted for 754,000 units, or 31 per cent of the total of 2.4 million vehicles sold in 2001, according to Automotive Resources Asia. Their share climbed to 66 per cent, or 5.9 million of the nine million vehicles sold last year.
Driving the market is China’s ‘average’ car buyer. Most likely a 35-plus male, he is a first-timer who will probably forego a low-priced entry-level car produced by a Chinese legacy maker, and opt instead for a mainstream model manufactured by a Chinese/foreign joint venture. Few buyers seek financing, and most pay in cash.
Priced between Rmb130,000 (US$19,000) to Rmb250,000, middle-tier cars have proved especially popular among Chinese consumers. This segment has been growing at 22 per cent, compared to 14 per cent each for the premium and low segments. Brand recognition is low, understandably with at least 120 locally made models, and 50 makers struggling to get a foothold in the market. “In 2002, the top seven brands controlled 75 per cent of the market, but now their share has dropped to only 50 per cent,” says Paur.
Consolidation might be just around the corner. Jonathan Chajet, managing director of Interbrand China, argues: “Eventually, China will be more like the US, the world’s biggest market, where there are only three car makers. The winning companies will have a strong brand image and track record in the domestic market, and they will prove themselves as an exporter. The others will become parts suppliers.”
Two likely survivors are SAIC and FAW. Both build middle-tier vehicles through joint ventures. To escape the crushing competition, SAIC is testing the premium segment with its Roewe 750, and in June it rolled out its Roewe 550. FAW has taken a similar approach with its Red Flag sedans. And the good news for marketers is that brand will become more important than ever. “Today, cars are more of a status symbol than a necessity,” says Chajet. “In a society of 1.3 billion people, and cities pushing 20 to 25 million, standing out is hard. Cars help you stand out.”
Got a view?
Email [email protected]
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