Outlook for the Chinese car market

　　By Mark Andrews

　　Over the first seven months of the year auto sales were up by 3.2% as reported by the China Association of Automobile Manufacturers. In many markets manufacturers would be pleased, but in recent years double digit increases have been the norm and 2010 saw a whopping 32% rise. With the Global Automotive Forum meeting in Chengdu on the 11 & 12th October the tough year is bound to be one of the topics hot on the agenda of delegates.

　　Various factors have been blamed for the slowing of the market. The end of government subsidies for smaller engine capacities and the cars to the countryside programme have played their part. Also a number of cities have implemented anti-car policies. Beijing has imposed a limit of 240,000 license plates this year whereas sales last year exceeded 800,000.

　　The biggest losers are the home grown brands. In August, only Great Wall and Geely increased sales. Figures for year on year sales show that domestic brands were down 2.86% despite a slight increase in the size of the overall market.

　　Two reasons are likely for the fall. Many of the local manufacturers produce smaller, cheaper cars which benefited from the subsidies. Secondly the growth of joint venture brands has let to an assault on their traditional market.

　　“Take a product 20 years-old and tweak a few parameters, it’s like displaying mutton but handing over dog’s meat,” is how Xu Liuping, Chairman of Changan, prosaically described the policy. Chinese consumers, though, have voted with their wallets and appear to value the cheap proven foreign technology.

　　Whilst it is likely in the coming years that the Chinese auto industry will continue to grow, unless there are stimulus policies the days of double digit growth are gone. One growth area, though, is likely to be the second hand market as first time buyers look to upgrade their cars and offload their old vehicles.

　　With the tougher market conditions domestic brands will no longer be able to piggyback on the overall market growth and will need to slog it out for market share. And with the growing numbers of JV brands being created they will now have added competition. This is going to mean inevitable consolidation as currently there are far too many manufacturers and the smaller ones especially have no chance of surviving. Survival will be dependent on clear branding and creation of coherent vehicle ranges, investment in car technology, and improvements in quality and service.

　　Some Chinese manufacturers are looking to overseas markets as a route to growth. However, manufactures in other Asian countries such as Japan, Korea, and even Malaysia have consolidated in their home markets before venturing overseas. As such these Chinese companies are truly sailing into uncharted territory.

　　Joint Venture manufacturers are increasingly likely to bring their latest offerings to China and will be pushed to also offer them with the latest engine and gearbox technology as consumers become more discerning. This will also mean less deleting features for the Chinese market.

　　There is also the question of quite what kind of vehicles these will be. Government targets call for there to be a million electric vehicles on the road by 2015. So far sales of such vehicles and also hybrids have yet to take off. According to the Ministry of Industry and Information Technology there are currently about 10,000 alternative energy use vehicles in use but only 1,000 are in the hands of private owners.

　　With few electric cars on sale and being handicapped by a lack of charging infrastructure there would need to be a massive effort for the target to be met. Also if it is achieved China may not have sufficient electricity generating capacity to power them.

　　The next few years contain many threats but equally many opportunities. How companies deal and are allowed to deal with these will truly influence if China becomes the automotive powerhouse that is so dearly wishes.

　　Mark Andrews is a freelance motoring writer based in Shanghai. He has written on car related topics for Auto Express, South China Morning Post, Sydney Morning Herald, and AutoCar.