Tiger Moms Craving SUVs Drive Next Wave of Chinese Demand

Bloomberg News, April 20, 2012

Tiger Moms
A Chrysler Group LLC Jeep sport utility vehicle (SUV) sits parked under red lanterns in Beijing, China. Photographer: Keith Bedford/Bloomberg

Zhou Na, a 37-year-old Beijing mother, says she knows why sport-utility vehicles are the fastest-growing segment in the world’s biggest automobile market: kids.
“I have to drive my kid around practically non-stop on Saturday,” said Zhou, who ferries her eight-year-old son to Kung Fu and English classes on weekends to the Children’s Palace of Beijing before joining her friends for yoga. “It’s pretty tiring, but I feel very good driving my BMW X5 around.”
Zhou represents the growing army of so-called tiger moms who may fuel the next spurt of growth for the automotive industry in China, where the middle-class population is projected to double over the next decade. Bayerische Motoren Werke AG (BMW),Daimler AG (DAI) and Ford Motor Co. (F) are among automakers unveiling new models, particularly SUVs, at next week’s Beijing International Automotive Exhibition to vie for families looking for a second vehicle to drive around children and buy groceries.
“You look at the trend for more utility and family- oriented vehicles and behind that is women,” said Bill Russo, a senior adviser at Booz & Co. and formerly Chrysler Group LLC’s China head. “In the U.S., we call it the soccer moms.”
SUV demand in China jumped 20 percent last year, more than triple the growth in total passenger-car deliveries, according to data from the China Association of Automobile Manufacturers. SUV demand continues to outpace other vehicle segments, with sales up 18 percent in the first quarter, bucking the slump in the broader market, where deliveries fell for the first time since 2005.

Car Sales Increase

The average Chinese consumer now earns more than $4,000 a year, crossing a threshold that Macquarie Group Ltd. (MQG)says typically spurs car purchases to increase at twice the pace of income growth.
“A car parked outside follows on the heels of home ownership as part of the middle-class Chinese dream,” Janet Lewis, a Hong Kong-based analyst at Macquarie, wrote in a February report. “Private car ownership was not common prior to 2000, but a family car is quickly becoming a desired -- and attainable -- consumer product.”
China’s middle-class population will reach 600 million to 800 million in the next 10 to 15 years, compared with about 300 million now, according to Macquarie.

‘Tiger Moms’

“For tiger moms -- and other moms -- SUVs offer great appeal as the whole family can be transported safely and in style,” said Trevor Hale, Ford’s Shanghai-based spokesman, in reference to the nickname coined by author Amy Chua for strict Chinese mothers. “We see great potential to grow this segment and are bringing more of our SUVs toChina.”
Ford will display three SUV models at the Beijing auto show, including the Kuga that’s aimed at families with a small child. The Dearborn, Michigan-based carmaker currently sells the imported Edge SUV in China and plans to build the Kuga at a new plant in Chongqing, southwest China, Hale said.
BMW will show the X3 xDrive 28i and revamped X6 at the Beijing show, which opens to the public on April 27. Sales of BMW’s X-series SUVs surged 92 percent in the first quarter to more than 20,000 units, according to the company.
Porsche AG, which depends on the Cayenne for half of its deliveries, will show a refreshed version of the luxury SUV. Maserati will exhibit its new Kubang, which the company said it expects to go into production in 2013. Volkswagen AG (VOW)’s Lamborghini will unveil an SUV study at the Beijing show, almost two decades after discontinuing the so-called Rambo Lambo military vehicle, a person familiar with the company’s plans said in February.

‘Year of SUVs’

“Automakers are swooping in with SUV models, even those that never had SUV models before,” said Zhang Zhiyong, an independent automotive analyst based in Beijing. “The segment is getting more crowded, which will definitely lead to price competition.”
That doesn’t deter Daimler’s Mercedes-Benz, which predicts 2012 to be the “year of the SUV” for the German carmaker, which will unveil its China-made GLK in Beijing next week. Mercedes-Benz boosted SUV sales in China by 85 percent last year, while total sales in the country rose 35 percent.
“With the rising middle class in the country, SUVs are among the most popular choices for Chinese consumers,” said Bjorn Hauber, executive vice president of sales and marketing at Mercedes-Benz (China) Ltd.
Demand for SUVs will continue to increase as more families buy their second car and the number of women owners increases, said Hui Yumei, head of automotive research at Sinotrust International Information & Consulting (Beijing) Co.

Changing Times

“In the past, most Chinese families had one car and it’s driven by the men,” said Hui. “Times have changed and there’re now more women car owners. SUVs will be the most important segment for automakers in China for a long time.”
Automakers are counting on Hui’s prediction to come true after sedan sales in China declined 2.2 percent in the first quarter, weighed by record fuel prices and a slowing economy. So-called dual-purpose vehicles used to ferry goods and people have slumped 8.5 percent, while truck sales have dropped 6.8 percent, according to data from the auto association.
That’s a contrast to 2010, when overall auto demand jumped 32 percent after the government introduced subsidies and rebates. Sales then slowed to 2.5 percent last year after the incentives ran out. This year, vehicle sales will probably miss the 8 percent growth forecast by CAAM, Gu Xianghua, deputy secretary general of the state-backed auto association, said last month.
The slowdown may be short-lived. Macquarie estimates SUVs will revive annual total vehicle sales growth to at least 10 percent from next year as incomes grow, Chinese cities become increasingly urbanized and public transportation remains inadequate.
Among those driving demand may be women like Nina Zhang, a 35-year-old accountant living in Beijing, who bought a Land Rover Freelander 2 last year to run errands and take her daughter to dance and art lessons on weekends at Jingshan Park, a former imperial garden.
“We used to go away a lot to the countryside before we became parents,” said Zhang, whose husband drives a Volkswagen Magotan sedan. “Now we don’t have as much time, but this SUV reminds us of the lifestyle that we love.”

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