Automobile market ten years experts talk about the six focal points of China's automobile development

author：Huajiang Technologynewstime：2012-04-18

Major Changes in China's Automotive Industry Over a Decade of WTO Membership

Over the past decade since joining the WTO, China's automotive industry has undergone significant changes. The production and sales of automobiles have maintained rapid growth; the product structure has become more rational with a substantial increase in the proportion of passenger cars; industrial concentration has increased with the top ten automotive groups accounting for about 87% of production and sales; new products are continuously being launched to meet domestic demand; automobile exports have maintained high growth; significant progress has been made in industrial restructuring; and automotive enterprises have made remarkable achievements in "going global."

Persistent Challenges and Opportunities

However, several challenges remain, and the situation is severe. Issues such as the upgrading of the industrial structure, the development of independent brands facing bottlenecks, and urban traffic congestion urgently need to be addressed. What is the way forward for China's automotive enterprises? As the world's largest automotive manufacturing and consumption country, how can independent and joint venture brands play their roles effectively? Can the development and transformation of China's automotive industry, starting from the "Twelfth Five-Year Plan," become a milestone? Let's hear the experts' views.

1. Independent Brands on the Verge of Transformation

Over nearly a decade of development, China's independent automotive brands have made remarkable achievements, but issues persist. For further development, these bottlenecks must be overcome, and independent brands are now at a critical juncture.

Most independent brand enterprises face several issues. Firstly, their positioning is unclear, lacking a cohesive brand strategy. For example, successful companies like Great Wall and Chery have introduced several brands in recent years, causing confusion. Secondly, product characteristics are unclear, with models lacking distinct highlights. Thirdly, enterprises do not have a clear understanding of their profit points, lagging behind home appliance companies like Haier, which successfully promoted their brand with a strong focus on customer service. Additionally, independent brands do not place enough emphasis on exports, which should be considered a critical task. Finally, the government car market has not been adequately tapped into.

For independent brands to achieve significant growth, these issues must be resolved. The government and consumers must also provide sufficient trust and support to these brands. This does not mean that independent brands should rely on policies for survival. Instead, a healthy development approach involves government support and guidance, with enterprises actively seeking market opportunities and enhancing their development.

2. Individualized Models: A Trend but Not the Mainstream

Unlike in the past when sedans were the standard, consumer preferences are now increasingly individualized, with manufacturers competing to launch unique models. While individualized models will be highly popular and attract attention, they will not become the mainstream. Traditional models will still dominate the market, at least for the next decade or two.

Cars serve multiple purposes: transportation, status symbols, and expressions of individuality. However, they are primarily tools. From a practical standpoint, traditional models offer more utility. Individualized models cater mainly to young private car owners, representing a small portion of the market. Therefore, manufacturers should carefully consider the balance between mainstream and niche models to avoid blindly following trends.

A model's success depends not only on its eye-catching appearance but also on its quality. High-quality models can capture the market, while those relying solely on novelty will quickly fade. Producing such models not only fails to bring high profits and a good reputation but can also backfire.

3. The Triumvirate: Volkswagen, Toyota, and General Motors

As the world's largest automotive market, China is dominated by four major automotive giants: German, Japanese, American, and Korean brands. German brands, having entered China early, have established successful joint ventures like Shanghai Volkswagen and FAW-Volkswagen, offering a diverse product line and strong technical capabilities. For instance, Audi holds an almost unassailable position in the high-end market. Volkswagen aims to achieve 3 million sales in China, a crucial market for its global success.

Japanese cars, known for their comprehensive configurations and attention to detail, have long been popular in China. However, Toyota's conservatism has slowed its market growth. Nissan, through its joint venture Dongfeng Nissan, achieved sales of 800,000 units, with a target of 1 million for this year, while Toyota's two joint ventures barely reached 900,000 units last year. Toyota's hybrid technology, however, remains a significant advantage.

General Motors aims to produce and sell 2 million units in China, positioning itself alongside Volkswagen and Toyota. The rapid growth of Korean brands is notable, but surpassing Volkswagen, GM, and Toyota is challenging. French brands like PSA face internal issues, making significant short-term achievements in China difficult.

4. Government Procurement Boosts Independent Brand Market Share

Independent brands face pressure from the expanding reach of joint venture products, challenging their upward mobility. The increasing uncertainty in the domestic economy and the gradual withdrawal of favorable policies have made it difficult for independent brands to maintain high growth. However, independent brands are well-prepared, and even slight policy support can significantly benefit them.

Earlier this year, government guidelines mandated that all vehicles for party and government use must be independent brands, the best support for these brands. The policy's impact has been evident. Since the initial proposal to support independent brands in 2006 and the requirement in 2009 that government procurement of automobiles include at least 50% independent brands, the latest policy further strengthens this support.

Although the actual proportion of government procurement for independent vehicles remains low, it still provides a significant market share. Considering the demonstration effect of government procurement, the potential sales impact could be substantial.

Independent brands face challenges in moving upmarket, but government procurement offers a valuable opportunity. While high-end official vehicles are rarely domestically produced, successfully catering to general government vehicle needs could eventually lead to greater acceptance for high-end official use.

5. Luxury Cars Enter a Competitive Phase

Over the past decade, China's economic development has led to a consumption upgrade in first-tier cities. These cities now have substantial vehicle ownership, with potential for product replacement and upgrades, creating a market for luxury and imported cars.

Emerging and resource-rich cities are also driving luxury car demand, contributing to rapid growth in this segment. For instance, Beijing's Asian Games Village Automobile Exchange Market reported a 13.54% year-on-year increase in imported car sales in the first quarter, with luxury cars dominating the top ten rankings.

China's automotive market has become a global focus, with international brands eager to gain a foothold. As a complement to domestic cars, manufacturers are accelerating the expansion of their product lines in the imported car market.

In addition to expanding dealer networks and exploring second- and third-tier markets, the increasing variety and affordability of luxury brands are key factors. German luxury brands have introduced entry-level models accessible to a broader consumer base, attracting many mid-to-high-end consumers from joint venture brands.

While the rapid growth of luxury brands may not last, intense market competition will eventually lead to a more rational development state, benefiting both enterprises and consumers.

6. New Energy Vehicle Development Faces Three Major Bottlenecks

The development of new energy vehicles (NEVs) is an inevitable trend. As a non-renewable resource, oil's long-term price increase is expected amid growing global demand and persistent international instability. Rising oil prices will alter the current traditional automotive consumption structure, pushing the market towards economical and energy-efficient vehicles, with NEVs becoming the future direction.

NEVs have low usage costs. For example, the BYD E6, which I have driven for some time, requires nightly charging, sufficient for daily use with a range of 300 kilometers. It is particularly suitable for government vehicles, offering significant promotion potential due to its cleanliness and environmental benefits.

However, NEVs in China are mostly still in the prototype and exhibition stages, far from market promotion and commercialization. Three major bottlenecks hinder their development:

1. The industrial support system for NEVs needs improvement. Market feasibility studies, safety usage tests, and market support services require a complete system for practical implementation, a current weakness in China's NEV industry.

2. The focus on product-centric "single-track" development is costly and risky.

3. Energy conservation and environmental protection awareness have not yet deeply penetrated public consciousness.

Addressing these bottlenecks is crucial for the successful development and commercialization of NEVs in China.