Foreign Auto Makers look to China

Given that China’s economy has been slowing, the biggest growth engine that it has been pursuing is to get reluctant customers into the market. The price of owning a car in China extends well beyond just the monthly payment. Along with this payment comes heavy taxes and parking costs, which are a major reasons for customers’ reluctance.

China has remained a crucial sales and profit region for global giants like Volkswagen, General Motors, and Toyota. However, the problem lies in the fact that Chinese consumers’ interest in cars is slowing along with economic growth in China. Another barrier adding to this problem is the growing number of Chinese cities that are curbing auto sales in order to fight traffic congestion and pollution. Despite these complications, “many foreign car makers remain optimistic, pointing to the number of new buyers coming to the market. Three out of four new cars are purchased by first-time buyers, according to research firm J.D. Power and Associates”. Optimism is key and in terms of these auto makers’ plans, strategy will go a long way. More growth in auto sales will come from targeting smaller cities that still have high demand for individual mobility.

Many global auto executives met this weekend at the Beijing International Automotive Exhibition with the plan of offering lower-priced vehicles to the young, professional Chinese population- thus, aiming to bring a new demographic into auto sales. Honda aims to release a new sedan at 70,000 yuan ($11,272). GM plans to release a new version of the Chevrolet Cruze with a smaller engine in order to meet China’s energy efficiency requirements. Also, China’s largest car maker, Volkswagen, will release five models for Chinese consumers.

However, some feel that the odds are still against foreign car makers targeting the Chinese population. Analyst Lin Huaibin from consulting firm IHS commented that “It’s almost certain growth in car sales will slow. When people feel the pinch of economic slowdown, they will cut spending”. I feel that auto demand in China has the potential to expand, but some areas are more plausible for growth than others. In big cities like Beijing, regulations on air pollution are tightening and there are also caps being placed on the amount of licensed vehicles in the city. The amount of time it takes to actually obtain a license plate is definitely another force acting against foreign car makers. On the other hand, if these car makers target Chinese cities with smaller populations and strong economic performance, they will see more success.

4 thoughts on “Foreign Auto Makers look to China

  1. viczhou

    I agree that “the price of owning a car in China extends well beyond just the monthly payment”. However, I think ordinary Chinese people are still highly interested in owning a car, but the main resistance is the government’s restriction on auto sales on concerns of traffic congestion and air pollution.

  2. josimon

    I think there could be a strong outlook to China in this instance. But I also believe there is a bias against certain car companies if they were to try and target the people market in China. Some car might not fight into the whole, which is why the government is concerned about more traffic congestion and air pollution. If smaller car companies with very little to no gas usage came into play, I think it would be able to enter the China car market.

  3. ajsanna

    Good post. I think that, while growth is slowing, China and other developing markets still represent some of the best markets for automobile manufacturers to sell in. Here in the US, car sales are a low growth industry so they need developing countries to fuel growth.

  4. jyyoo

    Great post! China’s market is extremely huge, so it is an attractive market no matter if it is slowing down.

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