China Autos Speeding Ahead

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China’s overall economy may be growing slower than expected, but don’t tell that to China’s auto makers. Unit sales for the first six months of 2013 grew by an amazing 17 percent to 7.8 million. That’s more than twice the rate of overall economic growth projected for China in 2013. The World Bank’s latest forecast is that China’s Gross Domestic Product will grow by 7.7 percent this year. More amazing is the fact that China’s auto market, already the largest in the world, shows no signs of slowing down.

The big story so far this year is the booming market for SUVs in China. Sales of SUVs grew by 40 percent to approximately 1.3 million units in the first half of the year. SUVs now account for 17.3 percent of the country’s total passenger car market, compared to 14.8 percent last year. In addition to overall market strength, new models from Great Wall, Chang’an, PSA and Ford contributed to growing demand.

For all the talk of a slowing economy, sales of luxury cars spurted 30 percent in June, bringing the first half’s growth rate to 12 percent. Sales of Audi and BMW led the way, with sales of Audi and BMW growing by 34 percent and 44 percent, respectively, in June, and 18 percent and 15 percent, respectively, for the first six months of the year. Together, Audi and BMW accounted for 65 percent of the 629,000 luxury cars sold so far this year in China. The rest of the luxury car lineup includes Jaguar and Land Rover, Lexus, Mercedes Benz, Porsche and Volvo.

On an overall basis, China’s local assemblers outperformed the global brands during the first half, increasing their market share to 33 percent of the passenger car market. As a group, the local assemblers grew by 24 percent, compared to 14 percent for the global brands. Leading the way for the home team was Great Wall, which increased sales by 44 percent to just over 300,000 units, and Chang’an, which saw its sales increase by 92 percent to 257,000 units. On the strength of its tight grip on the SUV market, Great Wall is now the volume leader among the Chinese assemblers and is generally considered by industry experts to be the best of the local players.

In terms of brands, Volkswagen leads the way with 20 percent of the overall market, followed by General Motors at 10 percent and Hyundai at 7 percent. Toyota and Nissan round out the top five with approximately 5 percent each.

If you think that the Chinese passenger car market cannot continue to grow at double-digit rates, guess again. IBISWorld, which reports that revenues for China’s passenger car market reached $381.3 billion in 2012, a 21.3 percent annual growth rate over the past five years, forecasts total industry revenues to increase at an annualized rate of 10.5 percent to $628.2 billion in 2017.

Recent discussions that we have had with the local auto makers suggest that the local car companies expect to grow much faster than the overall market. Great Wall, Geely and Chery all have plans to more than double sales over the next three years. With rising income levels in China, improving road conditions and more competitive prices, passenger cars are becoming more affordable for a greater number of Chinese residents. Moreover, virtually all of the local car makers are implementing aggressive export and overseas expansion programs. While Chinese brands may not be showing up in the most developed markets of the world any time soon, they are getting warm receptions in other emerging markets.

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