Tag Archives: Auto Industry

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.

Auto Sales in China: Multiple Players, Multiple Strategies

China, the most populous country in the world, is always a critical market for auto makers. In spite of the fact that its economy is slowing down, many people are still bullish about the potential of auto sales in the country because of the increase of middle class, as well as the government’s goal of boosting domestic consumption for economic growth.

Both domestic and foreign auto makers displayed their latest (probably coolest as well) cars along with gorgeous models to attract potential buyers’ attention at this week’s Beijing auto show, and many of them are really ambitious about their China business. For instance, Toyota Motor Corp., the world’s largest auto maker by sales, aims to take the third spot in the country in terms of market share by bringing 15 new car models to Chinese consumers by 2017 and doubling its sales to two million cars over the long run. Similarly, Volvo Car Corp. said it expects China to overtake the U.S. and become its biggest market this year based on a statement issued Sunday, in which the Swedish company said it sees sales of at least 80,000 in China, up from 61,146 in 2013.

So what kind of strategies are auto makers adopting for sales growth? In my observation, the top three concepts are branding, patriotism, and youth-targeted design.

First, branding is essential for every single auto maker. Most buyers in China are not industry experts and cannot tell the difference between two similar-level cars based on technical factors. Therefore, what really helps a particular auto maker stands out is branding. Simply speaking, manufacturers have to think how to make their cars look both reliable and fancy to consumers, instead of being overwhelmingly focused on technical excellence.

Second, patriotism can be an effective selling point of domestic brands. Makers like Geely Motor Corp. and Great Wall Motor Corp. are trying to persuade buyers, especially those elders, to remain loyalty to Chinese brands. However, I think those domestic manufacturers have to increase quality and enhance industry structure to stimulate sales radically.

Third, youth-targeted design is emerging to be a dominant theme. Unlike many Americans under 30 who are burdened with college debts or wrestling with a sluggish job market, China’s young consumers have “incredible resources”, which is derived from the one-child policy in the country. As a result, many top auto makers like Mercedes-Benz showcased what they described as sport-utility vehicle coupes — SUVs with fast-looking roof lines that look to be borrowed from a sports car to attract young buyers.

In conclusion, I think there is not a best strategy for all auto makers, and they have to target the right buyers based on their unique selling points such as design, price, momentum, etc.

(Revised) How to Deal with the Decline in China’s Car Demand

China used to be considered as a big market for many kinds of products. However, as China’s economy slows recently, its role as the biggest growth engine for the global car business depends on auto makers getting reluctant customers behind the wheel, as written in Wall Street Journal.

The automotive industry in China is quite unique as the joint ventures with foreign car makers play a very important role. Of the automobiles produced, 44.3% were local brands (including BYD, Dongfeng Motor, FAW Group, SAIC Motor, Lifan, Chang’an, Geely, Chery, Hafei, Jianghuai, Great Wall and Roewe), and the rest were produced by joint ventures with foreign car makers such as Volkswagen, General Motors, Hyundai, Nissan, Honda, Toyota, Mitsubishi etc. Most of the cars manufactured in China sold within China. Foreign automotive companies cannot sell the cars directly to China’s market, instead, they have to become joint ventures with Chinese local car makers in order to have the right to produce and sell within China. 

Why is there a sales decline in China’s automotive industry given that China has just become the world’s biggest automobile market in 2013?

  • Slowing-down economic growth. The deflation policy slows down the economic development in China. Chinese consumers’ interest in cars had shown signs of cooling along with broader economic growth.
  • Auto Sales Control. A growing number of Chinese cities are controlling auto sales to fight against traffic congestion and pollution. To combat air pollution, China’s State Council, or cabinet, released a national plan in September that called for a 15 percent to 25 percent reduction in particulate matter by 2017 in the three key manufacturing regions anchored by Beijing, Shanghai and Guangzhou.
  • Anti-corruption campaign. The demand for imported luxury vehicles will decline as the official frugality campaign spreads beyond the government and affect companies and individual consumers.

Nevertheless, we can still find ways out for the automotive companies:

  • Young people should be the targeting consumers. Given that many of the young are paid relatively well compared to the old generation, they may today borrow to finance their housing or cars instead of saving until they have enough money to enjoy.  Moreover, the good news for most of the automotive companies is that – Chinese people love brand new cars. Most of the Chinese prefer brand new cars to the second-hand because they may think it uncomfortable to use something that may have been owned by others.
  • Inland cities would be promising markets. Since most of the big cities, as well as the rich costal cities, are already overwhelmed by too many cars, their local government may implement the “controlling” policy sooner or later so that the demand for cars is limited. Most of the inland cities are quite well-developed in recent years. Many well-paid job opportunities are created in these cities creating many relatively high-income people. Hence, the inland cities will be a promising market for the automotive industry in the near future.

Positive news for Detroit

Recent news from the auto industry shows that the Detroit Big Three are returning to the top. Auto sales rose a huge deal in 2013, and American car makers are showing signs that they are coming out of the slump.

However, in terms of the industry, December sales were lower than average but 15.6 million cars and trucks were still sold in 2013. That marks the industry’s best year since 2007. Probable causes for the drop in sales of December 2013 may be that the weather was colder than usual and we experienced more snowstorms. Sales of the Ford Fiesta dropped 20.2% and the Ford focus fell 31% from the prior year.

Nevertheless, the auto industry has came a long way since 2008. Five years ago marked the biggest decline in auto sales since the Great Depression. Back in 2008, the U.S. Treasury was focused on selling the last of its GM stock. Flash forward to 2013- GM has sold 2.8 million units, up 7.3%, Ford has sold 2.5 million units, up 11%, and Chrysler has sold 1.8 million units.

In recent news regarding the North American Auto Show, Ford stole the shine this year with its new aluminum pickup truck, the 2015 F-150. The increase in fuel efficiency will save 20% more than the prior F-series model, due to the fact that the lightness of the vehicle has led to higher efficiency. Specifically, it is 700 pounds lighter than a comparable steel vehicle. These weight savings are directly related to fuel economy savings, which is what makes the new F-150 so appealing to consumers. In terms of numbers, the F series sold 763,402, up 18% from 2012. After sales like these, Ford earned the title of the industry’s most popular brand for the fourth year in a row.

After’s Ford’s innovative move with aluminum based pickup trucks, we may see the other auto makers start to make moves similar to Ford. Innovations like these will make it cheaper for other companies, in terms of procurement and material costs.

In other related auto news, hybrid vehicles are now on the rise. In America, hybrid vehicles have also started to become more and more popular. The Toyota Camry was voted America’s most popular car. The steady decline in gas prices over the year proves the significance of the Toyota Camry, also stability in hybrid sales indicates that hybrids are more accepted as mainstream products. It was refreshing to read that the world is actually moving toward more green alternatives. In economic terms, it was also refreshing to hear that Detroit’s economy is receiving a boost due to the success of the Auto industry. Excited to work in downtown Detroit after graduation, I am curious to see other ways in which Detroit’s economy will build itself back up in 2014.