At the Automotive News China Conference in Beijing this week we have been hearing much about how the Chinese car market is changing and the rapid pace of that change, writes Dave Leggett.
Private buyers are replacing the ‘institutional’ (typically government officials, state enterprise bosses) ones and the passenger car market is heading for an annual level of six million units by 2010, according to JD Power’s Mike Dunne.
Analysts at Global Insight reckon that could be conservative and forecast that the car market this year will hit 4.2m units.
But it is a cutthroat market. Competition is intense as the global OEMs and their JVs with local partners vie with Chinese domestic makers for share. Who will win?
Market analyst and consultant Mike Dunne has been around the Chinese block more than most and his views tend to be worthy of note. The Chinese consumer wants to make a statement and that drives the high-end market up, he says. But even the Chinese Porsche 911 driver will be anxious not to pay one yuan more than the best deal available. The Chinese consumer is a demanding creature that shops around.
Car prices in China range from US$4,000 for the Chery QQ to US$120,000 for the BMW 7 Series. Escalating competition is forcing prices down and makes turning a profit hard for carmakers and dealers alike (struggling dealers, by the way, are a hot tip for consolidation into bigger dealer groups over the next few years).
Right now the big market battleground is 4-door sedans in the US$6,000-US$15,000 range, typified by the fast-selling Buick Excelle – Dunne estimates that market segment accounts for 30% of the car market. And it’s a battleground that is geographically centred in the populous south of the country, Guangdong Province, where pragmatic southerners want value for their hard-earned.
Dunne said that northerners opt for big ‘showy’ cars, westerners are characterised as easy-going, but southerners are more demanding. They want as much metal as they can get and they want as small an engine as they can get away with. Money is king.
“Think of Guangdong Province as like the California of China,” urges Dunne. “He who wins Guangdong wins China. This is where the sophisticated and demanding customers are and it sets the pace.”
But there is along way to go. China’s car market is by its nature an elitist business, growing fast from a virtual standing start. Eighty percent of car buyers are buying a car for the first time. Chinese per capita car ownership stands at around 10 cars per 1,000 people (which compares with a figure of around 700/1,000 for the US, 500/1,000 in Western Europe).
Joint ventures involving foreign makers and local partners still dominate, but domestic players are growing and the Chinese government wants them to account for 60% of the market in the medium term.
At the large car end of the market, the Japanese and Korean makes (Toyota, Nissan, Hyundai) have been strong since the market opened up when China was admitted to the WTO. These brands offer a value for money and reliability proposition in large cars that has worked well. In the middle of the market are the big joint ventures, typified by Shanghai Volkswagen’s Santana.
Chinese domestic makers dominate the market for cars under US$10,000, but they are just beginning to move upmarket with cars like the Chery A520, Brilliance Zhonghua and SAIC Roewe.
Should foreign makers be worried? Yes, but Dunne also maintains that unlike the Japanese and Koreans, Chinese consumers have yet to show particular allegiance or emotional ties to homegrown brands. It’s a dynamic environment, with all brands being tested and evaluated by new consumers. Brand loyalty is absent at this stage in the market’s development.
“All the brands in China are in purgatory,” he says. “They have not been sent to heaven or hell by Chinese consumers, but in time, as the market develops, they will start to separate the brands.”
While the Chinese market looks set to grow with the economy, that state of purgatory to which Dunne refers will help to keep everyone on their toes.