China beats recession by selling cars? Absolutely. Earlier this year, the performance of the new car market in China hit a new high, with 1.1 million vehicles sold per month and a growth of 5.1% year-on year-compared to 2008. China is now the fastest-growing car market in the world, and the Chinese car makers look at 2010 with excitable hope of "rapid production" (An Conghui, Vice Pres. Geely Motors).
Chinese Car Market Growth
The 13th Shanghai International Automotive Industry Exhibition, as it’s prophetically titled, has been a coincidental blessing for China. The show marked the beginning of a new epoch in which the Chinese car market has seen demand overtake that of America and Europe. As Western manufacturers and suppliers struggle under the burden of increasing buyer empathy and financial fear, China’s domestic market booms to the sounds of defiance and opportunism.
What was long thought to be a relatively non-essential market for the big players has morphed into a swelling opportunity for selling mid-market and luxury product.
Chinese Government Stimulates Buyers
The Chinese government can take some credit for keeping their domestic demand strong, as it offers tax cuts and incentivised purchase for fuel-efficient cars and buyers in outlying areas. Because of the nature of the home market, Chinese manufacturers account for some 25% of all vehicles sold there. It is higher up the food chain where gaps in the prestige sector enable the Western car makers to get a foothold. This may now be set to change. China is proud of its resilience in the face of massive decline in demand for traditional exports, and it is not keen for its slice of its automotive pie to disappear westwards.
The bigger Chinese players have until recently focused on cheap runabout offerings to city dwellers with limited disposable income. This probably explains why you have never heard of car makers Brilliance, Chery or Geely. They are certainly doing the right thing in up-selling higher end cars to their established market before trying to export to other countries. Regardless that buyers are more educated and open-minded than at any point in history, brand cachet still counts for a lot. Badge goes hand in hand with perceived quality, and the Chinese makers do not have either outside of the protection of their home market.
Wider View of China Beating Recession
One high-ranking executive for a hitherto unnamed Japanese giant said that the Chinese cars have a reputation for "poor reliability and quality", and this will be "the reason why they will not succeed beyond their own borders". Another issue is one of residual values. Buyers must offset any potential savings on choosing a new Chinese car against potential losses when it is time to sell. Korea had a similar problem ten years ago, yet still managed to engineer good export opportunities for themselves. Those cars are now universally respected in terms of quality and value, and Hyundai in particular has been able to offer some popular products in competitive markets.
With the likes of Porsche, Audi and BMW persistent in trying to sell their more "up-market" sheet metal (see company websites for entry level pricing), some have suggested that in many respects, they may be trying to flog a glittering but lifeless horse, in the face of ever-wavering buyer enthusiasm. It appears to many to be a persistent stance of self-belief, when what may be required is a brief moment of reflection. With respect to the world's new-found stance on downsizing and exponential negativity, perhaps the real winners have, until now, kept themselves small.
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