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 After nearly two decades of frenzied growth driven mainly by the
very wealthy, China's auto market is maturing, yet remains
ferociously competitive with manufacturers having to react quickly
to shifting consumer trends.
Today's emerging buyer has more modest financial means, yet aspires
to own a car that's "different".
People like Zhou Wenxi, a 32-year-old Shanghai cram-school owner,
and Guo Yetao, 23, a software salesman from Hangzhou, are fuelling
two trends: hot demand for smaller crossover sport utility vehicles
like Ford Motor Co's <F.N> EcoSport; and more interest in
affordable, entry-level luxury cars like the Audi <NSUG.DE> A3.
There is a potential "seismic shift" in the influence these young
urban professionals will have on China's auto market, says Yale
Zhang, head of Automotive Foresight, a Shanghai-based consultant.
"There are different tiers of young urban professionals. Some are
rich and a bit older, others are more normal," he said. "But they
tend to be similar in two traits: they want to be different, and
don't necessarily have an endless amount of money to throw around."
Guo, the Hangzhou salesman, recently took out a loan to buy an
EcoSport crossover for 115,800 yuan ($18,700), while Liu Yao, a
22-year-old office worker in Huaibei in Anhui province, borrowed
from his parents to buy a Haval M4 mini-crossover from Great Wall
Motor Co Ltd <601633.SS> for 60,000 yuan.
Among the less well-off young urbanites, the EcoSport, at 94,800
yuan, has been a volume seller for Ford since its launch early last
year. Sales last year were 59,680, and reached 17,392 in
January-March of this year.
At this week's Beijing auto show, car makers including PSA Peugeot
Citroen <PEUP.PA>, Hyundai Motor Co <005380.KS> and local firm Haima
Automobile Group <000572.SZ> will unveil new mini-SUV models.
Chevrolet launched its Trax, a tiny crossover, in China earlier this
month.
According to IHS, there were just five subcompact SUV models on sale
in China in 2010. By 2020, there will be almost two dozen, driving
up sales of this segment to more than 880,000 from 345,650 last
year.
AFFORDABLE LUXURY
Other young professionals, maybe small business owners or
higher-earners, are setting their sights higher.
Zhou, the cram-school owner, paid about 280,000 yuan ($45,000) for a
red Audi A3 compact sedan. "Audis aren't flashy, and the A3 is
entry-level, so the price isn't outrageous," she said.
Manufacturers will show off several more affordable, entry-level
luxury cars at the Beijing show.
A crucial shift for them will be to produce more of these models in
China, which would cut the price as they would not be subject to
hefty import duty and other taxes.
Volume sales in this premium compact car sector have trebled to more
than 52,000 in the past four years, according to IHS data, so
remain, for now, a tiny niche in China's total passenger car market
of close to 16.8 million.
Some global luxury brands, such as Nissan Motor Co Ltd's <7201.T>
Infiniti, Honda Motor Co Ltd's <7267.T> Acura and General Motors
Co's <GM.N> Cadillac, have been late to enter China, and now see its
potential as a market for premium cars.
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Infiniti is looking to improve price competitiveness with what
global president Johan de Nysschen calls a "very aggressive ...and
rapid localization" strategy — making locally as many as 80 percent
of the 100,000 cars Infiniti aims to sell in China in the medium
term. The brand also aims to capture fast-emerging, young buyers
with affordable entry-level luxury cars.
"You've got a big (wave) of people coming in now. They have
disposable income; they are very much attuned to the premium
brands," de Nysschen told Reuters on Saturday. "For us, and for
other car companies, this presents a big opportunity because it's a
market force."
Nissan has no compact car in its product line-up today, but Infiniti
plans to bring the Q30 compact crossover — on display in Beijing as
a concept vehicle — to China eventually after the model goes on sale
in Europe next year.
For now, Infiniti is set to start making a couple of mid-size cars — the just-launched Q50 sedan and the QX50 crossover — at an existing
Nissan plant in Hubei province later this year.
The Q50 currently starts at a hefty 389,800 yuan ($62,900) in China
because it's imported. De Nysschen said the China-made model should
be significantly cheaper once its made locally, and is not subject
to China's import duties and taxes. The Q50 starts at $37,150 in the
United States.
Infiniti sold just 17,108 vehicles in China last year, though that
was up 54 percent from 2012. It plans to increase the number of its
China retail outlets to 80 this year from 67 currently.
Ford last week said it would open its first eight Lincoln stores in
several cities from October, and would have 60 stores by 2016.
Five years ago, there were fewer than a dozen luxury car models sold
in China under five premium brands. Today, that has mushroomed to
more than 90 models offered by 25 brands, says market research firm
TNS.
To protect their market edge — and counter slowing economic growth
and a government crackdown on excess — established luxury brands
such as Audi, Mercedes-Benz <DAIGn.DE> and BMW <BMWG.DE> are
expanding their line-ups into entry-level models and producing more
models in China to make them more affordable.
Audi, for example, priced its A3 hatchback from 199,000 yuan last
month after it started making the car in Foshan, near Guangzhou.
(Additional reporting by Yoko Kubota in Tokyo;
editing by Ian Geoghegan)
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