Booming car sales impact more than China’s auto industry

Ivy Funds, April 21, 2011

China’s auto sales have doubled since 2008, and there’s plenty of growth still ahead. But that growth isn’t just about selling cars. From service to accessories, finance, insurance, rentals, crash repair, road construction…even prosthetic limbs (the result of inexperienced drivers involved in gruesome crashes), China’s new automobile culture is boosting sales all over the place.

“Right now there are 80 million cars on the road in China,” says Bill Russo, head of Beijing’s Synergistics, an automotive consultancy, and former head of Chrysler in China. “By 2020 there will be three to four times that number, so the impact on all the downstream businesses ... is only beginning.”

One obvious downstream industry that will ride the wave of increased auto sales is road construction. With nearly 400,000 miles of roads build from 2006-2010, China has clearly been on the fast track. And there’s no end in sight with goals set for road improvement, expressway construction and rural road construction.

Car repair shops also are seeing dollar signs, thanks in part to young customer base of first-time, new car buyers. “Seventy-five percent of our customers are 35 and younger,” said Kirk Cordill, head of BMW Automotive Finance in China. The driving records of such inexperienced, undeveloped drivers result in high accident rates, which have paint and body shops raking in the bucks.

The vanity side of the car boom has accessory shops cashing in, too. Headlamps, seat covers, the horn, the video system all get customized. Some car owners will even repaint a new car so that it’s a better reflection of who they are. “This is a culture that people from afar see as very uniform, but when you experience it firsthand you realize how unique and personal people like to be ... because they want to break away from the pack,” explains Russo.

With industry forecasters saying the Chinese will buy 20 million cars in 2011, and given the tendency of China’s car market to break forecasts, anything is possible. (Source: Financial Times, researchinchina.com)

None of the Ivy Funds mentioned in this section hold Chrysler Group or BMW.

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