Honeymoon period of Chinese own auto brands

Chinese own auto brands played a leading role in this year’s Shanghai Auto Show in April. Therefore, it is believed that Chinese own auto brands can continue their excellent performance in Guangzhou Motor Show.

According to China's auto sales data of the first three quarters of 2009, sales of Chinese own auto brands account for almost half of Chinese car market. Sales growth rate of Chinese own auto brands’ cars rose 57% compared with same period of last year, which is far more than Japanese, German and U.S. made cars. Sales of Chery, BYD, Geely, Changan, Brilliance, FAW and Shanghai Automotive are each in an explosive growth in the past months. So far, sale of Chinese own made passenger cars has reached more than 3 million units, which can be seen as the first confrontation of Chinese own auto brands against joint ventures.

Performance has exceeded expectations and the current main assignment for Chinese own auto brands is the layout of auto stocks in 2010. Major security companies are proposing shareholders to buy more stocks of passenger cars manufacturing especially stocks of Chinese own auto brands’ cars accounting for higher rates of corporate profits.

Whether for strategic or tactical considerations, more and more Chinese own auto manufacturers are aware of broadening their market share in the secondary and third class markets. Cars to the countryside and small-displacement cars’ subsidy policy will continue to be implemented in 2010 therefore the better performance of Chinese own auto brands will go ahead.

As early as three years ago, many secondary class cities have replaced Beijing, Shanghai, and tourist attractions as the forefront markets of a number of auto manufacturers. Before that many large listed enterprises have conducted considerable activities in cities such as Chengdu and Hangzhou. Previously, although Chengdu is known as China's fourth city of cars, in quite a long time it was a hotbed of economic cars rather than the mainstream market especially the forefront of high-end models.

Increasing number of auto manufacturers is paying great attention to the western market of China such as Chengdu, which signals that they have noticed the upgrading trend of economic cars in Chengdu. This is just one aspect, from the communication points of view of decreasing effect, the spread of a upper class market often tends to reach a subordinate market, so the radiation of the secondary class can reach numbers of the third class market, which is the reason for the secondary class markets are increasingly paid attention by auto manufacturers.

China's auto market can be divided into at least three levels according to market position .The most developed cities in China such as Beijing, Shanghai, Guangzhou and Shenzhen are the first class market that also have the strongest purchasing power. Provincial cities such as Wuhan, Chengdu, Hangzhou, Nanjing as well as Dalian, Qingdao, Xiamen, Ningbo, Wenzhou, Yiwu, Guangdong, Dongguan, Chongqing and Tianjin belongs to the secondary class market. The third class markets are China's prefecture-level cities including economically developed areas of Zhejiang, Jiangsu and Guangdong. For car brands, the first class market is main battlefield for multinational and auto joint ventures. Moreover, their sales channel could only reach the secondary and third class markets. So far, the third class market is a market dominated by Chinese own auto brands and especially a long term nourishment and growth base for economic cars. Meanwhile, the third class market is Chinese own auto brands’ natural barrier when compete with multinational and joint ventures’ brands.

Furthermore, with the development China's economy, the first and the secondary class markets have increasingly become the inventory market while the third class and even inferior market are a huge incremental market. In that case the importance of transition from the secondary to third class market is becoming increasingly prominent. Compared with the secondary market, peripheral radiation ability of the third class market is more noticeable. Additionally the third class market has more amount and size advantages over the first class market.

Considering that there are many auto brands in the first and secondary class market and the high cost of lands and sales operations, a great amount of cash is deposited in its channel. However, due to cities below the secondary class hasn’t yet formed a strong channel and the brand loyalty is relatively low, there is enough space for auto manufacturers to sell more cars. As long as the channel management has done well, the third class market will be able to provide auto enterprises with a stable cash flow. Actually the above point has been proved by the good sales performance of the Jetta and Santana, and increasing sales growth of Chinese own auto manufacturers such as Chery, BYD and Geely year by year. (Translator: Qinghua Wade)

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