China's auto-makers are heading out into the world
Chinese auto-makers' plans to establish their brands in overseas markets are gathering pace even as domestic sales growth slows.
Car sales in China grew by only 5.2 per cent in 2011, their slowest rate since Chinese consumers’ fascination with cars started to be matched by their ability to buy them about a decade ago. While growth in 2012 is expected to recover slightly, it will likely still be well short of the 33 per cent of 2010.
Local brands, such as Geely, Chery and Great Wall, made up 30 per cent of the 14.5 million units sold in the world’s biggest car market last year.
This was a couple of percentage points lower than a year ago, with the loss of market share attributed to the removal of tax incentives for small car purchases which made foreign brands – typically larger cars – more attractive.
Another reason was local government moves to tackle traffic gridlock, including imposing quotas on new car registrations in Beijing.
Slowing sales growth at home has provided greater incentive for Chinese auto-makers to expand overseas, which fits well with China’s overall goal to transform itself from a low-cost to high-added-value economy. China’s determination to succeed in Europe, for example, was highlighted by last year’s purchase of Volvo by Geely, and the ongoing attempt by Zhejiang Youngman Lotus Automobile to buy Saab. And Great Wall built a 50,000-unit capacity factory in Bulgaria, with its first European sales slated for this year.
But just how realistic is the scenario of Chinese cars competing with long-established European and US brands on their home turf?
While Chinese auto-makers are already selling large numbers of cars in Latin America, the Middle East and Russia, the big challenge they face is winning over more experienced and discerning customers in mature markets.
Sceptics argue that it will be many years before the established US, European and Japanese global brands have to worry seriously about Chinese competition. Even in emerging markets, Chinese auto-makers are facing stiffer competition from established global players looking to diversify away from their own slow-growing home markets.
My view is that both domestically and internationally, Chinese auto-makers
are in a similar position to that of their South Korean counterparts a generation
ago in that they need to establish themselves with consumers on more than just price. Today most Chinese buyers still prefer foreign brands, but over time this should change.
A year or two ago, with such rapid growth at home, it was thought Chinese brands would take at least another 10-15 years to mount a serious challenge to their established global rivals. However, with slower growth in the domestic market, this timeframe may be shortening.
