GLOBAL carmakers’ love affair with the booming Chinese market is still going strong, but many are bracing for a new stage of competition that will require offering better fuel economy and smaller cars — both recipes for slimmer profit margins.
Only a few years back, foreign carmakers mostly offered their largest and priciest sedans here, slapping a “China premium” on the price tag to boot, as wealthy Chinese mimicked U.S. consumers’ preference for big, gas-guzzling cars.
But a doubling of crude oil prices in the past couple of years has sparked a worldwide shift towards smaller, fuel-saving cars — a phenomenon that China is also embracing.
“The trend towards small vehicles is global,” Wang Fengying, president of sport utility vehicle maker Great Wall Motor Co., told an industry conference Friday ahead of the Beijing Auto Show.
The SUV and pickup truck maker planned to turn its focus on the small car segment to ensure it kept growing, even aiming to lead the industry in the field, she said.
Nick Reilly, General Motors Corp.’s group vice president and head of its Asia Pacific operations, said the U.S. automaker also had its sights on smaller cars after climbing to the No.2 position in China with high-end sedans and SUVs.
“Most of the growth (in China) will occur in the mini to lower-medium segment,” he told the Automotive News China Conference.
More small cars such as Toyota Motor Corp.’s Yaris subcompact are showcased at the auto show. Japan’s top automaker is due to begin producing the car in China later this year.
No matter how tough the competition, many global automakers still consider China to be the Promised Land, especially as they now face the prospects of a slowdown in the U.S. and European economies.
After becoming the second-biggest auto market in 2006, China still has a lot of growth ahead, most forecasts predict.
After reaching nearly 8.8 million vehicles last year, the Chinese auto market is seen growing to 10 million units this year. Double-digit growth expected to continue at least over the next five years, exceeding projected economic growth of 7-8 percent over the same period.
The rate of car ownership in China is still just 44 out of 1,000 inhabitants, according to research cited by Magna International. That is just one-third of the global average of 120 per 1,000, and far behind 750 for the United States.
Still, competition will stiffen. In addition to an ever-intensifying price war among foreign makers, local brands are also stepping up. Product quality is improving and Chinese manufacturers are inching into upper segments in the hope of boosting local market share, as well as boosting their presence overseas.
So far, Chery, Geely and Great Wall — the top three national brands with no foreign partnerships in China — have managed only a 28 percent share due to their lack of offerings in the US$20,000-and-above car segment, said Michael Dunne, managing director of research firm J.D. Power’s China operations.
“That’s almost a third of the Chinese market,” he said, adding that the super-rich were by-passing the Chinese brands to opt instead for the Audis, Mercedes and other status symbols.
While not quite there yet, the “Young Tigers,” as Dunne calls the three local marques, are moving up in the price range. Chery has the A3 car priced at US$13,700, more than double what its mainstay QQ sells for.
“We’re moving upscale,” Geely Group vice president Frank Zhao said. The carmaker plans to develop more than 40 models using 15 vehicle platforms by 2015. (SD-Agencies)
