China's auto market bid farewell to the golden decade and entered the era of "micro growth"

author：开云（中国）kaiyun·官方网页版newstime：2012-04-18

China's Automotive Industry Enters an Era of "Micro-Growth"

Many industry insiders have recently proposed a new concept: China's automotive industry has entered a new stage, the "micro-growth" era. The year 2011 marked a turning point for China's auto market. The growth rate of automobile production and sales significantly declined compared to the high growth rates of 30% to 50% seen in previous years. This substantial market adjustment has made it clear that the "automotive cake" is not as easy to consume as before. To thrive, it is crucial to have a clear and thorough understanding of the "micro-growth" in China's auto market.

Farewell to the "Golden Decade"

In the past decade, China's annual car sales have surged from 2 million to 18 million. However, it is essential to recognize that such rapid growth is unsustainable. The sharp decline in domestic automotive consumption growth since last year signals a market stabilization. As the Chinese automotive industry enters a transitional period, maintaining sustainable and healthy development is now an unavoidable challenge.

Liu Shijin, Deputy Director of the Development Research Center, divides the development of the automotive industry into three periods. The past decade was the adolescence or rapid growth phase. Starting from last year, the industry has entered a phase of stable growth with minor fluctuations, the "micro-growth" era, and will eventually transition into a mature growth period with enhanced stability.

Historical analysis reveals that market fluctuations are primarily driven by macroeconomic adjustments. The high growth rates in 2009-2010 were largely due to policy stimuli. During macroeconomic adjustments, tightening of funds and projects often impacts all industries, necessitating subsequent "hormonal" relief measures, which are not very effective. The 2009 automotive consumption stimulus policies were necessary, aimed at encouraging small-displacement vehicles and rural market development. However, the abrupt withdrawal of these policies led to a market plunge. Most now agree against further short-term stimulus policies. In a stable growth phase, policies should focus on encouraging energy conservation and emission reduction rather than excessive short-term consumption stimulation.

The "golden decade" has ended, and the "micro-growth" era has begun. Significant market surges are unlikely in the foreseeable future. This transition, after 20 years of rough growth, intensifies the pressure on the industry but also fosters the elimination of outdated practices, increases industry concentration, and promotes technological advancement. It helps improve the relationship between automobiles and the environment and resources, curbs blind investment, raises market entry barriers, and optimizes development models by encouraging companies to focus on cultivating independent innovation capabilities and core competitiveness.

Three Meanings of the "Micro-Era"

The transition to the "micro-era" in China's auto market is influenced by changes in domestic and international economic environments. However, it also reflects a necessary rational return after years of high growth and policy stimuli, aligning with industry development trends.

The first implication of the "micro-era" is the slowdown in growth. Xu Changming, Director of the Resource Department of the National Information Center, predicts a 10% growth rate for the domestic market in 2012, while Chen Hong, President of SAIC, forecasts a 4% growth rate. By the end of the year, whether the market reaches 20 million units or not, "micro-growth" is already a common understanding within the industry.

The second implication is "micro-transition." The Chinese automotive market is becoming more diversified in terms of vehicle types, components, and consumer groups. Demand for first-time car purchases is shifting from major cities to third- and fourth-tier markets. Demand for ordinary sedans is transitioning to mid- to high-end sedans, while demand for economical cars is shifting towards SUVs and MPVs. Practical needs are evolving into brand recognition and experience. These transitions indicate that rough vehicle launches and quality management practices are no longer viable. Only models that accurately capture market trends will sell and be profitable, with a few key models driving the success of each manufacturer.

The third implication is "micro-profit." In 2011, passenger car prices consistently declined. Despite rising costs for raw materials, labor, and components, the oversupply in the automotive industry led to falling prices. With shrinking profits, especially for mid- to high-end cars, manufacturers must adopt a frugal approach in 2012. For instance, Chery cut over ten research models in 2011, with its main model G3 experiencing multiple delays before its launch.

In summary, with the arrival of 2012 and the "micro-era," China's automotive market is moving towards the mature markets of Europe and the United States.

Demand Remains Strong

From a long-term perspective, China's automotive demand is still in a rapid growth phase. Objectively, China is already the world's largest automotive market and remains in its early development stages. With a massive consumer base of 1.3 billion people, China's dominance in the automotive market is likely to continue, although high growth rates of over 30% are unlikely. This presents challenges for China's automotive industry and management but also provides opportunities for market transformation and the formation of an automotive society.

Automotive demand growth follows typical international patterns. When per capita GDP is between 4,500 and 12,000 international dollars (based on Maddison's 1990 international dollars), automotive demand accelerates. When per capita GDP reaches 4,500-9,000 international dollars, the number of cars per thousand people expands from 20 to 100, maintaining an annual growth rate of 18-19% for 9-10 years. When per capita GDP reaches 9,000-12,000 international dollars, the number of cars per thousand people grows from 100 to 200, with an annual growth rate of 11-12% over 6-7 years. In 2011, China's car ownership per thousand people was about 70, still in the rapid growth stage from 20 to 100 vehicles.

Based on international experience, China's car ownership per thousand people is expected to maintain an annual growth rate of 18-19% for the next two to three years. After exceeding 100 vehicles per thousand people, the market will gradually enter a mature growth phase with an annual growth rate of around 15%. Assuming stable macroeconomic conditions domestically and internationally, China's automotive production and sales growth rates in 2012 are expected to recover from the previous year, reaching approximately 20 million units and maintaining an 8% growth rate. The market trend will likely start low and end high throughout the year.

Therefore, China's automotive industry must remain calm, identify gaps during development, and recognize challenges and pressures amidst market advantages. Especially during the critical transitional period of domestic automotive development and the global "starting period" for new energy vehicles, the industry should seize opportunities, innovate, and overcome development bottlenecks. Arrogance must be avoided to prevent becoming mere spectators in the future "feast" of a million-unit automotive market.