China automotive
June 22nd 2015 | China | Passenger vehicles | Multiple companies
Chinese automakers are gaining ground in the world's biggest market, at the expense of foreign rivals.
On home turf in the world's biggest car market, Chinese car brands have long been losing out to overseas players. With plentiful earnings from their joint ventures with foreign carmakers, most of the big, state-owned makers have devoted less attention to their own brands. Drivers, especially in the urbanised east of the country, prefer the classier offerings of foreign vehicles. Own-brand Chinese cars lost more ground in 2014 to take just 38% of the market for passenger cars.
Yet a remarkable reversal appears to be underway. According to the China Association of Automobile Manufacturers (CAAM), a body with ties to the government, local makers beat off the foreigners to take their market share to 42.1% in the first five months of the year, nearly four percentage points higher than a year earlier.
There are some subtleties to this story. CAAM's figures measure shipments to dealers, not retail sales, while overseas makers are quick to blame fleeting factors like the phasing out of older models for their flagging performance. The overall Chinese car market is barely growing (see article)—a bad sign for manufacturers whatever their nationality.
Still, there are reasons for foreigners to worry. Local makers have successfully capitalised on the craze for sports utility vehicles (SUVs), sales of which accelerated by more than 40% in May (while sales of own-brand Chinese cars continued to fall). Cheaper fuel has played a part, following a collapse in global oil prices. Moreover, there may be a long-term shift in consumer priorities. Following a relaxation of the one-child policy, drivers are eyeing bigger conveyances in which to carry their offspring. Ironically, limits on licence plates being imposed for environmental are also spurring the trend: more consumers are opting to buy big when they have the precious chance to do.
Local makers have lifted output of SUVs and launched new models. It also helps that consumers in many cities in the Chinese interior, where the best hopes for growth lie, favour Chinese manufacturers' cheaper vehicles. The native insurgents sold twice as many SUVs in January-May 2015 as a year earlier, claiming more than one-half of the market. Most top-selling SUVs are now designed and made in China.
ChangAn, a state-owned enterprise, is one that stands out. Despite a mediocre May, the Chongqing-based firm has motored to 13.1% growth overall this year, producing three of the ten domestic best-sellers, including two SUVs. But many of the gains are going to private players not coddled by relationships with global firms: the likes of Great Wall, BYD and Geely.
Foreign makers are cutting prices and trying to stall the home-grown challengers by other means. General Motors, whose sales fell by 4% in May, has found strength in its popular Baojun 730 multi-purpose vehicle (MPV). (Chinese demand for MPVs, like SUVs, is racing ahead.)
Meanwhile, Hyundai Motors is struggling worldwide. By May, sales in China were dipping fast: Beijing Hyundai Motor Co (BHMC) sold 12.1% fewer vehicles in May; collectively, sales by Hyundai and its affiliate Kia slumped 9.9%. The Korean company had been looking to expand its capacity for making SUVs, both in the US and China, but has recently been scaling back production, leaving it poorly placed to compete in the bracket.
Nissan, which in China outsells Toyota, its bigger Japanese competitor—also experiencing a slowdown—boosted its performance handily, by starting to report its retail sales figures (up 6.8%) rather than wholesale numbers (down 2.5% in January-April). Toyota's nearest global rival Volkswagen is aiming to ramp up production at a newly opened assembly plant in Changsha, part of its "Go South" strategy aimed at filling holes in its supply chain.
The Changsha plant will start by making the Lavida compact sedan. Sales of the Lavida are slipping, like those of the Volkswagen as a whole. But the German maker, like its peers, relies heavily too heavily on China to roll over for its local rivals.