China’s exports to emerging markets are surging as its own market slows and its automakers keep pouring billions into new factories. Roads in countries such as Algeria, Brazil, Iran, Russia, Saudi Arabia and South Africa are increasingly dotted with cars from manufacturers like Geely, Great Wall Motors and Chery, the New York Times said.
Less affluent buyers from Santiago to Baghdad are starting to buy cheap Chinese cars as alternatives to used cars, motorcycles and low-end models sold by multinationals. Chinese car exports were up 21% in the first five months of this year, and up 43% in May, year on year.
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Chinese automakers told the paper they were preparing for further expansion in exports to developing countries.
“They’re easy for us to operate in,” said Steven Wang, the deputy general manager for exports at Great Wall Motors Company. “In Europe, they have lots of laws for new entrants, and in Europe and the United States, customers like to keep familiar brands.”
Annual auto sales in developing countries other than China have risen by 45% since 2005 to 21.3m cars and light trucks last year, according to LMC Automotive. Including China, emerging markets passed industrialised countries in 2010 for the first time in the number of cars and light trucks sold.
Since 2005, auto sales in industrialised countries have fallen 17.4%, to 36.2 m cars and light trucks last year.
The market in industrialised countries was still worth more than emerging markets, however, because retail prices tend to be considerably higher. But with so much growth in developing countries, “you have to be incredibly aware of the domestic brands” emerging in China, Michael Manley, the head of Chrysler’s international operations, told the New York Times.
Western automakers have been buying a wide range of Chinese cars and then having engineers dismantle them to study the quality and likely cost of major components.
“We have a very thorough benchmarking process” to assess Chinese competitors, Kumar Galhotra, Ford’s vice president for product development in Asia, the Pacific region and Africa, told the paper.
When J D Power & Associates surveyed new car buyers in China last year, it found that they reported 232 quality problems for every 100 Chinese-brand cars purchased. For cars carrying international brands, 131 defects were reported for every 100 cars.
Jacob George, the managing director of J D Power’s China division, told the NYT Chinese automakers had been steadily closing the gap with their overseas rivals since his company began doing annual surveys in 2000. If trends continue, he predicted Chinese manufacturers would catch up in quality by 2018.
Chinese automakers spend an unusually low share of revenue on design, focusing on ruthless cost-cutting instead.
J D Power also surveys buyers in China on how appealing they find their cars after three months of use. Chinese brands consistently score worse than international ones, particularly in categories like engine noise, driving dynamics and seating comfort, George said.
Safety is less important to buyers in emerging markets.
Ford’s market research found that as recently as 2006, safety ranked last among the nine most important attributes for Chinese car buyers. Although safety has moved up to sixth, the exterior appearance of a car was the top priority for buyers then and now.
Chinese regulators are putting pressure on Chinese automakers to strengthen their designs. They have begun issuing star ratings for safety to cars sold in China, after copying the test methods from the National Highway Traffic Safety Administration in the United States.
But the fact remains that consumers in China and other emerging markets generally focus more on price, the report said. And Chinese automakers are low-price leaders around the globe, selling new cars for as little as half the price of western rivals. Emerging markets tend to have relatively few late model used cars competing with new subcompact cars, unlike in the west, making cheap Chinese cars even more saleable.
The New York Times noted that Chile, though it is a small market, offers a window into the potential of Chinese brands. While Chinese companies barely registered there six years ago, today they claim 10% of all passenger vehicle sales and 19% of all commercial truck sales. This unparalleled growth was bolstered by a lack of local manufacturers and a near absence of trade barriers, Francisco Errandonea, head of equity research at Santander GBM in Santiago, told the paper.
“Because of this openness, many brands see Chile as a test market for the region and a gateway to Latin America,” Errandonea said.
In Brazil, the rapid growth in Chinese car sales led the government to announce in September that it was raising import tariffs on cars by 30% to as much as 55%, to protect local subsidiaries of multinationals. Brazil went from being one of the top three export markets for Chinese cars last year to not ranking in the top 10 so far this year.
Over all, China exported 850,000 vehicles last year. That was dwarfed by Japan, which exported 4.4 m cars and trucks last year, and South Korea, which exported 3.2 m. But China is starting to catch up, with exports up 50% from 2010.
However, despite the extensive presence of western brands and factories in China, top executives at multinationals said they had no plans to export significant numbers of their Chinese-made cars.
“I’m not saying we could not export, but there is no need to export,” said Renault-Nissan chairman and CEO Carlos Ghosn.
Volkswagen in 2004 shipped some right hand drive Polo sedans from China to Australia.
For now, multinationals are fighting for greater market share in China, the world’s largest auto market with 18 m cars and light trucks sold last year.
The paper also noted that Chinese brands are finding that their own country is one of their most challenging markets. Chinese automakers held 28.7% of their home market for passenger cars in the first five months of this year, down from 32% in the same period last year.
A few of China’s biggest cities, including Beijing in December 2010 and Guangzhou last weekend, have imposed stringent limits on the registration of new cars, cutting local sales in half almost overnight. Buyers who can obtain scarce licence plates are more likely to put them on higher-priced cars, and these tend to be made by multinationals, not Chinese automakers.
Chinese auto executives said that, while they were intensely interested in other emerging markets, their top priority was the emerging market in their own backyard.
“If we want to be number one,” Great Wall’s Wang said, “we should be number one in China first.”
