China's Auto Market: House of Cards or Taking a Breath?
Apr
12,
2016
When it comes to China’s economy, the trouble signs are everywhere.
State-owned coal and steel producers may lay off hundreds of thousands of workers, while exports of goods are down sharply. But the automakers aren’t going wobbly.
China’s vehicle sales are expected to rise 6 percent this year, and that’s enough to stave off any loose talk about production cuts, says Namrita Chow, a London-based analyst for IHS Automotive.
"The companies are sticking to their growth plans for China," Chow said. "Because demand is still growing in interior regions, if you don’t have capacity, you can’t sell there. That’s the immediate problem."
Product trends
To be sure, China is not a good market for the faint of heart. As global auto executives gather for the Beijing auto show -- with press days scheduled for April 25 and 26 -- they will encounter newly competitive Chinese rivals.
Brands such as Great Wall, Geely, Trumpchi and Baojun are gaining share, and they’ve proved to be especially agile in China’s fast-growing compact crossover segment.
Chinese automakers "are doing quite well, as opposed to a decade ago, when they were still learning the ropes," Chow said. "They’ve fine-tuned a lot of their products with the help of international suppliers. And they’ve got a better feel for what Chinese consumers want."
With that in mind, Chow identified five product trends:
1. Electric cars and plug-in hybrids will continue their dizzying growth rate, with deliveries expected to jump 70 percent in 2016.
2. Compact crossovers will remain hot this year, as automakers expand the segment with a wave of new models.
3. Sedan sales will continue to shrink, but automakers will continue to roll out new entries in the huge segment.
4. The premium segment will witness an influx of crossovers as the German luxury brands introduce new models.
5. MPVs will continue to lure newly prosperous rural car buyers away from minibuses, which once dominated the entry-level segment. Chinese automakers will cater to these customers.
Most automakers have yet to announce their concept cars and production models for the Beijing show, but the categories listed will generate some action.
In the sedan segment, Mercedes-Benz will unveil a long-wheelbase E-class sedan, while Ford will roll out its flagship Lincoln Continental. The Nissan Maxima sedan will debut in China, and Volkswagen will showcase the Phideon, a China-only sedan that will be positioned above the Passat.
In the crossover segment, Mazda will unveil its CX-4, and Mercedes is rumored to be readying a long-wheelbase version of the GLC, a big seller in China.
Growth in the interior
As they schlep from hall to hall in search of new show cars, auto executives doubtless will debate the health of China’s auto market. Is it a house of cards, or is it just catching its breath?
Chow says the market will keep growing this year, anyway. That’s because it appears the central government will do whatever it takes to maintain growth.
Last October, Beijing halved the purchase tax on vehicles with engine displacements of 1.6 liters or less. This year, the government is rumored to be considering incentives for truck buyers, according to Chow.
If the government introduces truck incentives, IHS Automotive will raise its growth forecast accordingly.
Much of China’s growth will occur in the interior -- particularly in China’s Tier 3, 4 and 5 cities -- now that the prosperous coastal markets are starting to level off.
Foreign automakers have been opening new dealerships, but Chow says the Chinese brands tailor their products for price-sensitive customers in rural markets.
As a result, "there will be greater competition between brands with price-cutting, and the Chinese brands are becoming a bigger threat," Chow predicted.
Translation: China is no longer a market where everyone can be a winner. From now on, there will be losers, too.