GM-VW China Rivalry Heats Up as Both See 3 Million Auto Sales

Bloomberg News, April 21, 2013

Click here to read the article published in The Washington Post

General Motors Co. and Volkswagen AG, the largest foreign carmakers in China, both forecast sales will climb to 3 million vehicles in the country this year as the rivalry heats up for a second year.

GM is “cautiously optimistic” and expects its sales to reach that level if market fundamentals are strong, Bob Socia, head of China operations, said in an interview at the Shanghai Auto Show yesterday. His Volkswagen counterpart, Jochem Heizmann, said a day earlier that the German carmaker expects deliveries to reach that number or beyond. Both companies sold about 2.8 million vehicles in China last year.

The projections signal competition -- GM’s lead over VW in China shrank to less than 1 percent in 2012 -- will intensify as their sales slow in their biggest market. At stake is supremacy in China, which may become the first market with more than 20 million vehicle sales this year, and where car-ownership levels are still a fraction of those in the U.S. and Western Europe.

“In terms of their presence, GM may be in a better position with their strong network and a more complete product portfolio,” said Bill Russo, president of automotive consultancy Synergistics Ltd. Still, most carmakers “are probably anticipating market expansion to be not as robust as it has been in the past, and the supply-and-demand imbalance is creating additional pressure on pricing,” he said.

Heizmann’s Apology

Wolfsburg, Germany-based VW, facing a European auto market headed toward a 20-year low, is seeking to rebuild its image after a state broadcaster’s report on defective gearboxes in VW cars prompted the German company to recall a record 384,181 vehicles in China. Heizmann expressed his personal apologies over the matter at an April 19 event in Shanghai.

Apologies may not suffice. More than a dozen stone-faced riot police in black flack jackets and helmets lined the VW stand yesterday morning. Across the aisle at the Buick stand, a young American couple modeled beside the Riviera concept car, where a man wore a silver shark-skin suit evoking Frank Sinatra, while female models preened in a metallic silver sheath mini- dresses and high heels.

The incident hasn’t deterred the German company’s expansion plans. VW forecast it will increase its China line-up 29 percent to 90 models by 2015, invest 9.8 billion euros ($12.8 billion), and expand production there 60 percent by 2018.

‘Squeezed’ Margins

GM, which outsold VW in China last quarter after trailing the German carmaker for two quarters, isn’t ready to relinquish the lead. The company showcased a record 53 vehicles at the Shanghai show, including the Buick Riviera concept vehicle, the Chevrolet Cruze hatchback and Cadillac Escalade ESV. The company plans to spend $11 billion in China by 2016.

Still, GM is mindful of the competition and China is a market where margins will “always be squeezed,” he said.

There’s more to China than just GM and VW as other previewed their offerings to Chinese consumers at the Shanghai show. Sport utility vehicles -- the fastest growing segment of China’s auto market -- stood out. Honda Motor Co. showed its concept Acura SUV-X that will be produced in China, Ford Motor Co. said it plans to debut two small SUV models in the market this year, and Daimler AG showed off its planned Mercedes GLA.

Chrysler Group LLC’s Jeep, which became the first western auto brand built in China in 1983, may resume Chinese production by the end of next year, starting with the Cherokee, Mike Manley, head of the brand, said in an interview. Ford has received an “incredible” number of pre-orders for its EcoSport and Kuga SUVs that debut this year, Jim Farley, the automaker’s global marketing chief, said in an interview.

SUVs Shine

At GM’s Cadillac stand, a pearl-white Escalade ESV rotated on stage as a model in a white brocade gown posed for a throng of photographers. Curious showgoers piled into the front and back seats of SUVs at GM’s Buick and Chevrolet stands.

“SUVs are considered a status symbol of the advancements you’ve made so far in your life,” said Manley. “As you get better ride and handling and fuel economy in SUVs, you see people migrating out of passenger cars.”

Automakers have reason to be optimistic about SUVs. Sales of the vehicles will probably rise 23 percent to 2.46 million units, outpacing all segments in 2013 for a second straight year, according to the state-backed China Association of Automobile Manufacturers. Chinese SUVs are also doing well, with Great Motor Co.’s sales of its Haval vehicles surging 92 percent during the first quarter.

Crowding Market

Luxury carmakers continued their push to capitalize on China’s growing number of wealthy consumers. Daimler said it plans to increase its number of dealers by about 30 percent this year and BMW’s Rolls-Royce is planning to expand its network by 25 percent.

The Chinese market, cluttered with more than 90 brands of vehicles, may get even more crowded as Volvo Cars and Jaguar Land Rover prepare to begin production in the country. The extent of the choices available, can sometimes overwhelm consumers.

“There are so many options nowadays,” said Kenneth Zheng, 32, who was checking out Renault SA’s 320,800 yuan ($51,900) Talisman sedan at the Shanghai show. “I am totally lost just by touring around here. Popular models like Buick or Passat may be the safest choice.”

Nissan Motor Co.’s Infiniti will make two long-wheelbase models in the country, following VW’s Audi, Daimler’s Mercedes and BMW in stretching the length of their vehicles to cater to Chinese tastes.

Japanese Rebound

Nissan, which outsells Toyota Motor Corp. in China, said it’s expecting a 16 percent increase in sales at its Chinese venture this year as anti-Japan sentiment, triggered by a dispute over uninhabited islands last year, subsides from the protests that flared in September. Nissan, Toyota and Honda all saw their China sales fall last year, a slump that extended into the first quarter.

Still, for companies such as Nissan, the bigger challenge may be figuring out how to make cars that appeal to Chinese youths. Young people today are very tech-savvy, very much connected and social media is very important, so vehicles should bring friends together in the car and allow them to share social media content, according to Nissan Executive Vice President Andy Palmer.

“If you look at all the segments all around the world, the single biggest segment globally is ‘ba ling hou,’” Palmer said in an interview, referring to the Chinese word for people born in 1980 and beyond. “240 million people in the segment and nobody is really addressing on the global maker level. We think the needs of these customers are going to change the face of automotive not just in China, but globally.”

--Alexandra Ho, Christoph Rauwald, Keith Naughton, Tian Ying, Ma Jie, Yuki Hagiwara, Stephen Engle and Anna Mukai. Editors: Young-Sam Cho, Chua Kong Ho

WTO Intervenes in U.S. Pushback Against China Tariffs

Ward's Auto, November 12, 2012

Click here to read the article at wardsauto.com

An analyst says the duties are meant to keep imports of “posh” Western vehicles at bay while China moves beyond small-car production and develops midsize and large cars.

A new trade dispute at the World Trade Organization between the U.S. and China over protective duties could foreshadow a battle in a long war for supremacy in global auto markets, an industry expert says.

Peter Cooke, a professor of automotive management at the University of Buckingham in the U.K., discusses the scenario after the WTO’s disputes-settlement body established a panel to adjudicate claims China is imposing illegal duties on U.S. vehicles exported to the country.

Cooke predicts a tough fight from Beijing to maintain the duties, which he characterizes as both punishing and strategic.

According to the U.S. Trade Representative (USTR) office, the Chinese government in December 2011 issued both anti-dumping and countervailing tariffs on U.S.-built cars and SUVs with engine capacity of 2.5L or larger.

The USTR reports the anti-dumping duties are 21.5%, with lower rates for selected car companies ranging from 2% to 8.9%, and countervailing tariffs of 12.9%, with lower rates from between 6.2% and 12.9%. These are paid on top of China’s existing 25% duties on U.S. auto imports.

Cooke tells WardsAuto.com China is playing a “long game” with the aim of giving its auto sector time to develop midsize- and large-car capacity, building from its existing strength in the small- and budget-car sector.

“This is part of the new protectionism” spurred by China’s assessment of its local market, he says.

“Driving largely Western cars cannot be good for the pride of China – what about their own domestic brands?” the analyst says. In a market in which “posh” cars are imported, “the buyers love it, but if you are the government, you won’t.”

Chinese leaders “are flexing their industrial muscles, and they are looking at what is one of the most profitable sectors of the market and (saying), ‘We want some of that.’”

The analyst adds that China’s recent economic slowdown likely will make Beijing’s newly appointed political leaders more aggressive in fighting the WTO case.

The duties China is defending are intended to compensate domestic auto makers for alleged U.S. government subsidies to American car companies, and to punish those manufacturers for alleged dumping in China – selling at reduced prices cars that are more expensive at home.

Both practices could violate WTO rules. The panel will decide whether China’s claims are valid and, if so, whether they are in fact illegal.

The U.S. government is confident it will win the case. American diplomats fired a broadside at their Chinese counterparts during an Oct. 22 meeting in Geneva of the WTO dispute-settlement body that formed the panel to judge the countries’ conflicting claims.

Noting attempts to resolve the dispute through negotiations held with China since July have been unsuccessful, a U.S. statement claims China has “breached a number of its obligations under the (WTO) General Agreement on Tariffs and Trade, the antidumping agreement and the subsidies agreement.”

Several Chinese auto analysts contacted by WardsAuto suggest the U.S. move against China’s measures was timed to make President Obama appear tough on China during the run-up to his re-election.

They also suggest China’s tough stance at least is partly motivated by wanting to counter U.S. complaints to the WTO about Chinese promotion of exports such as clothing. The U.S. already has raised concerns about Chinese tire-import controls.

China’s higher duties are a way of “rattling the saber” over sales of U.S.-built SUVs in the country, says Bill Russo, senior adviser at global consulting firm Booz & Company’s Beijing office.

The tariffs “generally do not have a widespread impact for manufacturers who have production capacity to make cars in China,” he says. The effect is greater on “those who are importing vehicles…This may selectively target car makers like Chrysler who no longer produce vehicles in China.”

Russo also says the levies may be meant to “weaken premium brands of General Motorsand Ford (Cadillac and Lincoln, respectively) which are exported to China.”

While GM stands to gain if the WTO panel rules against China, the auto maker already has been prospering from its manufacturing operations in the country.

According to the China Association of Automobile Manufacturers, GM says imported vehicles account for less than 0.5% of its Chinese sales. 

Other U.S. auto makers also could benefit if America prevails in the tariff dispute and ultimately convinces China that freer trade is in everyone’s interests, predicts Tomas Hult, director of the International Business Center at Michigan State University.

He argues if China abolished its existing duties and harmonized its tariffs with the U.S. at 2.5%, then GM alone could sell 9 million cars a year in China, up from 2.5 million today.

“With the exception of the last year, the Chinese auto market has grown tremendously in the last decade, mainly due to the population growth of China’s middle class,” he says.

– with Leah Germain and Mark Gao in Beijing

VW Threatens to End GM’s Eight-Year Lead in China

Bloomberg News, October 24, 2012

After trailing General Motors Co. (GM) in China for eight years, Volkswagen AG (VOW) edged ahead in the third quarter, putting it one step closer to its goal of becoming the world’s biggest automaker.

VW’s deliveries in the country jumped 21 percent last quarter, almost triple GM’s growth, to 704,991 vehicles, according to figures the company reported yesterday. That beat the 664,765 that GM reported earlier this month.

Enlarge image

Volkswagen introduced new versions of its Lavida and Audi A4L sedans in the third quarter, and benefited from a territorial dispute that fueled so much anti-Japan sentiment that Toyota Motor Corp. and Nissan Motor Co. saw their September sales in China tumble the most since at least 2008. Photographer: Nelson Ching/Bloomberg

At stake is supremacy in the world’s biggest auto market, which analysts say will likely exceed those of the U.S., Japan and Germany combined three years from now. China is the biggest market for both companies.

“Being No. 1 in China means a lot to their global development,” said Harry Chen, an analyst with Guotai Junan Securities Co. in Shenzhen. “Volkswagen and GM will go through a period of time fighting at close quarters in China and they may take turns grabbing the lead.”

Though the comparisons aren’t perfect -- VW counts Hong Kong and Macau and excludes trucks, while GM does the opposite - - Kevin Wale, GM China’s outgoing president, yesterday confirmed that his company had ceded the top spot for the quarter. Volkswagen declined to comment.

With only one quarter left, GM’s lead of about 77,000 units may be enough for the company to hang on to the annual China sales crown.

The Buick Excelle and Chevrolet Sail were the top two selling cars in China for the first nine months, while VW’s top seller, the Jetta, ranked fourth, according to the China Association of Automobile Manufacturers. VW had five of the 10 best-selling cars through September, while GM claimed three spots, according to CAAM.

Japanese Backlash

Volkswagen introduced new versions of its Lavida and Audi A4L sedans in the third quarter, and benefited from a territorial dispute that fueled so much anti-Japan sentiment that Toyota Motor Corp. (7203) and Nissan Motor Co. (7201) saw their September sales in China tumble the most since at least 2008.

Most GM sedans were introduced two to three years ago and are reaching the end of their product life cycles, making them less attractive to car buyers, according to researcher LMC Automotive.

With more refreshed models in showrooms just as Chinese buyers have turned away from Japanese brands, Volkswagen has been better able to capitalize on the tensions than GM, said Steve Man, a Nomura Holdings Inc. (8604) analyst. Volkswagen is also expanding production capacity faster -- 38 percent growth this year versus GM’s 26 percent, JPMorgan Chase & Co. (JPM) estimates.

Cushion Against Europe

Volkswagen isn’t alone in gaining on GM. South Korea’s Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270) saw their combined sales rise 9.5 percent to a record in September. Ford Motor Co. (F), whose Focus compact is the No. 3 selling car in China this year, reported sales jumped 35 percent.

China has helped cushion the slump in Europe, where car deliveries are headed for their biggest fall in 19 years as the region’s financial crisis continues. Volkswagen, which aims to be the world’s leading automaker by 2018, yesterday reported its biggest quarterly earnings drop since 2009 because of Europe.

Though auto sales in China have slowed in recent months, the market has plenty of room to grow. Vehicle ownership in the country was equivalent to 4.7 percent of the population, versus about 51 percent in Japan and 81 percent in the U.S., according to 2009 figures from the Japan Automobile Manufacturers Association.

Following Jeep

Volkswagen in 1984 became the second foreign auto brand, after Jeep, to produce cars in China. But more recently it has trailed GM as the Detroit-based company and its Chinese partners cranked up production of Wuling minivans, which have outsold all other four-wheel vehicles in China for the past eight years.

While quarterly comparisons only go back to mid-2009, annual data shows Wolfsburg, Germany-based Volkswagen hasn’t held the lead in China since 2004.

Volkswagen is planning to invest 14 billion euros ($18 billion) from 2012 to 2016 in the country to regain its lead. GM said last year it planned to invest as much as $7 billion in China from 2011 to 2015.

To spur sales, GM is expanding capacity and boosting production of its luxury Cadillac lineup in China, Chief Executive Officer Dan Akerson told reporters in Sao Paulo on Oct. 21.

“Of course we’d like to see a more robust market in China,” Akerson said. “To me, it’s not whether you’re the biggest car manufacturer. It’s whether you want to be the most profitable.”

GM’s ability to fend off Volkswagen could hinge on Wuling’s minivans, which start below $5,000 and are used as both passenger-and cargo vehicles. Wuling accounts for about half of the Detroit automaker’s deliveries in China.

Cadillac Slumps

Wuling September sales fell 2.5 percent -- more than the total market -- as the slowing economy hit demand for cheaper vehicles as less-wealthy buyers reined in spending. Speculation the government may subsidize new minivans and small cars to spur growth in rural areas has also made some buyers delay purchases, said John Zeng, director of Asian forecasting at LMC in Shanghai.

While a 3.2 percent increase in Chevrolet sales helped GM avoid an overall drop, deliveries of Buicks tumbled the most since at least 2010 and Cadillac sales fell for a sixth straight month. Those brands are important to GM because they generate more than twice as much profit per car as Wuling, according to LMC.

GM, which like Volkswagen has ventures with SAIC Motor Corp. (600104) and China FAW Group Corp., is adding SUVs, a category that’s been expanding about nine times faster than China’s overall auto industry.

‘Malibu Disaster’

A 1.6-liter engine version of the Chevrolet Malibu, GM’s second-best selling car in the U.S. this year, has been a disappointment since it hit the market in February, said Lin Huaibin, an analyst in Shanghai with researcher IHS Global Insight.

“Malibu is a disaster,” Lin said. The car was unable to effectively compete against the Superb from VW’s Skoda brand and Hyundai’s Sonata, which has sold about twice the 29,000 units GM has managed with the Malibu this year.

Competition between GM and VW, the No.2 and No.3 global automakers, after Toyota, is entering a new era with both announcing in the past four months changes in the leadership of their China businesses.

“Both companies have proven they are strong in this market,” said Bill Russo, Beijing-based senior adviser at Booz & Co. “They are the two big fish in the pond and that’s not going to change even with a shuffling of management.”

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Click here to read the article at bloomberg.com

Jeeps Sell for $189,750 as China Demand Offsets Tariffs

Bloomberg, May 22, 2012

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

The Jeep store in south Beijing near the Timberland and London Fog outlets carries the season’s latest offerings of branded shirts, shoes, belts and backpacks. Not for sale here: Jeep sport-utility vehicles.

Jeep gear is so popular in China that there are more than 1,500 licensed clothing outlets in the country, where only 120 auto dealers sell the brand. While Jeep has a strong image connected to an adventurous lifestyle, three decades of changing ownership have left it without local production and missing out on surging demand for SUVs in the world’s largest vehicle market.

“Our brand awareness and consideration is running way ahead of where our actual volumes are,” Mike Manley, head of the Jeep brand, said in an interview in Beijing last month. “That’s why I can’t say strongly or often enough just what an opportunity China offers for us.”


Jeep sales rose 63 percent last year to 19,013 — less than three days worth of China sales for General Motors Co. (GM), the top foreign automaker in the market. Detroit-based GM has 2,900 dealers — more than 24 times the Jeep number — that sold 2.55 million vehicles last year, mostly Buick, Chevrolet and Wuling models.


Manley, who oversees Asian business for Jeep owner Chrysler Group LLC, said he wants to increase the brand’s sales in China by expanding Chrysler’s dealer network by as much as 29 percent this year and restarting local production by early 2014.


While Ford Motor Co. (F), a late entry to China, is working just to build awareness of its brand and products, Jeep struggles to meet runaway demand.

Well-Known Brand

“It’s not that the brand isn’t known; it’s known,” said Bill Russo, a former China chief for Chrysler. “It’s not that people don’t have a positive impression; they do. It’s just that they can’t get it. They can’t get what’s available around the world here in China, not at anywhere near the price point that you get anywhere else in the world.”


The Jeep brand’s first steps into China as a consumer brand seemed promising in the early 1980s, when military versions of the off-road vehicle were widely recognized.


“It’s amusing to think that when Jeeps were first produced in China, there were few cars on the streets, only three ring roads in Beijing and no freeways from city to city,” Jim Mann, an author-in-residence at Johns Hopkins School of Advanced International Studies in Washington D.C., said in an e-mail. “The enterprise has had a series of problems, but survives, like a cat with nine lives.”

Wrote the Book

Mann wrote a 1989 book called “Beijing Jeep” that detailed the challenges then-owner American Motors Corp. faced in setting up the first U.S. auto-manufacturing partnership in China in the early 1980s. Those challenges were immense, from cultural misunderstandings with then-partner Beijing Automotive Works to the changing ownership of American Motors when purchased by Chrysler Corp. in 1987.


Chrysler itself merged with Daimler-Benz AG in 1998 before the U.S. unit, based in Auburn Hills, Michigan, was sold to Cerberus Capital Management LP in 2006.
By the time Turin, Italy-based Fiat SpA (F) took control of Chrysler and its Jeep brand in 2009 as part of the U.S. automaker’s government-backed bankruptcy reorganization, Jeep’s original manufacturing partner had become Mercedes’s partner. Jeep output in China stopped in 2006.

Lacked Investment

“Chrysler had so many challenges in dealing with the change of ownership that they really couldn’t put the investment and the attention into building up any joint venture in China,” said Russo, the former Chrysler executive, who now is president of auto consultancy Synergistics Ltd. “They really scaled back to focus on the crisis back home. Now that the boat is afloat, so to speak, everywhere else, you’ve got to sail it back to China.”


Without an assembly partner, Chrysler has been looking for one in China as required to avoid steep tariffs. Manley also runs Asian operations for Fiat, Chrysler Group’s majority owner. Fiat’s partner, Guangzhou Automobile Group, would be a natural and officials with that company have said they want to build Jeeps.


“Of the options that are out there, which is the easiest to get to? Probably with Fiat’s joint-venture partner, mainly because there’s already a good relationship,” Manley said. Still, he said, there are a number of options for Chrysler in China. “I certainly have got the teams involved in it focused on coming up with the right solution for us by the end of the first half and I like to think we can do that,” Manley said.


It will probably take at least 18 months to begin production after deciding on a partner and receiving government approvals, he said.

Higher Prices

In the meantime, he watches as imported Jeeps continue to see sales growth even though the duties push up prices. The Jeep Grand Cherokee starts at 575,900 yuan, or $91,064. In the U.S., it starts at $26,995, according to company websites. The 2012 Grand Cherokee SRT8 version costs at least 1.2 million yuan, or $189,750, compared with $54,470 in the U.S., according to Edmunds.com.


“Jeep is an asset to Chrysler that could really have a lot of upside,” Russo said. “But they now need to localize these cars. Every competitor is localizing SUVs.”


Deliveries of SUVs will probably increase 16 percent this year to 1.85 million units, the fastest-growing segment of China’s automobile industry, according to the latest forecasts from the state-backed China Association of Automobile Manufacturers. The category grew 20 percent last year, according to CAAM.


Chrysler’s limited product range also makes it harder for the company to expand its dealer network, said Russo, who is based in Beijing.


“This is why Ford is now investing pretty heavily to introduce, I think, 15 models between now and 2015,” he said. “To get your dealers to invest, they have to see an exciting range of products that they can sell in reasonable volume.”

‘Safe, Rugged Car’

In the stand-alone Jeep clothing store, the walls are decorated with black-and-white photos of military jeeps as well as modern-day Wranglers. The brand’s ruggedness image led Ding Qi, a Shanghai businessman, to buy his wife a Jeep Grand Cherokee in 2004.


“I wanted to buy her a safe, rugged car, not one of those dainty subcompacts,” he said in an interview.


They use the SUV to go on drives with a local Jeep club. This year, the club, which has 200 members, plans to take a 48- day cross-country trek from Shanghai to Tibet to Nepal and back.


“A Jeep driver is one who doesn’t give up when faced with adversity,” Ding said. “That’s the impression I get because we’ve had to deal with floods, landslides closing off roads and other obstacles, but the club members always pull together.”

‘Sense of Superiority’

Yang Yang, 35, replaced her 2004 Grand Cherokee with a Volkswagen Tiguan this year because, she said, she thought the newer Jeeps had become less rugged.
“You don’t really feel it driving in the city, but when you get into the mountains or on a riverbed, you have this sense of superiority and joy,” she said of her old Jeep. “It’s hard to describe to people who don’t drive a Jeep and I’ve not had the same feeling from other SUVs — not the Tiguan that I’m driving now.”


The vehicle’s capabilities are so spectacular that sometimes they draw a crowd, she recalled.


“I love the Jeep for its ruggedness,” she said. “I remember one time we were going deep into the mountains in Anhui province and the villagers from surrounding villages came out to watch us.”


To contact the reporters on this story: Tim Higgins in Southfield, Michigan, at thiggins21@bloomberg.net.


To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

http://www.bloomberg.com/news/2012-05-22/jeeps-sell-for-189-750-as-china-demand-offsets-tariffs.html?x=1

Tiger Moms Craving SUVs Drive Next Wave of Chinese Demand

Bloomberg News, April 20, 2012

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.”

Click here to read the article at bloomberg.com

China’s consumers embrace bulky, pricey SUVs

Reuters, February 27, 2012


by Fang Yan and Kevin Wills

BEIJING (Reuters) - In 2005, Mercedes-Benz took a gamble and shipped its first batch of 200 sport utility vehicles from Germany to China, where cheap hatchbacks and black sedans ruled the roads.

“I was in the headquarters and my predecessor made this decision,” said Klaus Maier, the company’s China boss. “We were wondering whether we could sell this car.”

They shouldn’t have worried. Seven years later, SUVs — from modest Hyundais to gleaming, $500,000 Range Rovers — are muscling aside smaller cars on China’s crowded and chaotic streets.

Chinese consumers bought 2.1 million SUVs last year, up 25.3 percent from 2010 and representing 11.6 percent of light vehicle sales, according to J.D. Power and LMC Automotive. That is about half of the 4.1 million SUVs sold in the United States, where SUVs were 32 percent of the light vehicle market.

The increase in sales illustrates China’s car market is maturing, analysts say, and presents another opportunity for foreign makers to expand their presence in China.

Mercedes sold 54,000 SUVs in China last year and the cars accounted for 27 percent of its total China sales in 2011, a nearly two-fold percentage point increase since 2007.

“SUV is certainly the growth segment in China and the manufacturers are on to this,” said William Russo, an industry veteran who runs the consultancy firm, Synergistics, in Beijing. “We will see more and more SUVs actually built in China.”

In many ways, the Chinese infatuation with gas-guzzling SUVs is an unlikely one. Most car owners live in crowded, urban areas, with few opportunities for the rugged, dirt-road driving that features in car advertisements. But sitting high above the traffic in an expensive off-road vehicle has an appeal in China’s status-conscious society, especially for younger buyers.

A CHANGING MARKET

Land Rovers crowd Cao Jinwei’s showroom in Beijing where the long-time dealer says he increasingly sells to wealthy, younger customers.

“I could only sell about four or five Land Rovers every month back in 2005, but now I can do nine or 10,” said Cao. “Our clients were mostly middle-aged business owners at the time, but now, more and more young professionals, accountants and engineers in their 30s are also buying Land Rovers.”

SUV sales also reflect a changing market, according to analysts.

“The Chinese market has now reached a more mature level. The buyers who are coming in are not as much first-time buyers,” Russo of Synergistics said. “When you buy your second car, you tend to look for more variety. It’s bought for the family. It’s bought to do more recreational things. That’s a pattern we’ve seen in many other markets.”

Beijing resident Enya Xie ditched her tiny, five-year old Suzuki Swift last summer for a 2.5 liter Subaru Forester, which was three times as expensive.

“I feel safe and cool in an SUV,” Xie said. “It can also handle any road condition and take me to anywhere I want to go. Many cars got stuck half way on a slope in a recent camping trip. Only my Subaru and a pickup truck made it.”

J.D. Power and LMC statistics show female SUV drivers, mostly young professionals, have been increasing steadily in China, from 14 percent in 2007 to 19 percent in 2011.

“The SUV is expanding its appeal,” said Jacob George, managing director of J.D. Power’s China operations.

RISING COMPETITION

Mercedes wasn’t the first foreign carmaker to try selling SUVs in China. Nearly 20 years ago, Chrysler produced the Jeep Cherokee at its venture with state-owned BAIC, but failed to make any inroads because of quality troubles and its own restructuring. Today American carmakers have a comparatively small share of the market.

Instead, Japanese and Korean makers prevail in the compact segment while German companies dominate the luxury segment.

With an annual tally last year of some 160,000, Honda’s (7267.T) CR-V was the best-seller. Nissan’s (7201.T) Qashqai, Hyundai’s (005380.KS) iX35, Toyota’s (7203.T) Highlander, RAV4 and Kia’s (000270.KS) Sportage SL also made the top-10 list.

Nissan, which started making the Paladin in China in 2003, saw SUV sales at its China venture surge 48.3 percent year on year in 2011, nearly twice as fast as the industry average.

It added the Murano in September last year to its local lineup, which also includes the X-trail and Qashqai. Toyota, which started localizing SUV production in the same year, is now making Prado, Land Cruiser, RAV4 and Highlander SUVs in China.

Local production can pay off quickly, even for relative latecomers. Volkswagen’s (VOWG.DE) Tiguan became the runner-up in the compact segment in 2011, only around 22,000 units shy of front-runner CR-V.

General Motors (GM.N), a leading player in the sedan and mini-van segment in China, has started to make the Buick Encore SUV locally and Ford (F.N) plans to build Kuga and possibly EcoSport SUVs in the country. Chrysler, hoping for a comeback, has pinned its hopes on local assembly of the Jeep Cherokee.

ONE IS NOT ENOUGH

For sales of expensive SUVs to continue on their upward trajectory, dealers will need more people like Chen Yuming, a 32-year old Beijing property developer.

One SUV is not enough for Chen. He has three — a Porsche Cayenne, Mercedes G55 and GL450 — and can’t wait for the Mercedes G65 to hit the showrooms next year.

Decades of fast economic growth have swelled the ranks of China’s rich and those customers are being drawn to European luxury brands.

The luxury segment is growing fast. A total of 285,704 luxury SUVs were sold in the country in 2011, four times the 2009 level. Market share climbed to 13.7 percent from 8.4 percent, J.D. Power and LMC statistics show.

The expansion has drawn European luxury brand makers to add SUVs to their local assembly lines.

Audi, whose Q5 was the frontrunner in the luxury segment last year, will soon make the Q3 at its Changchun plant alongside the Q5, which first hit the market in March 2010.

China-made Mercedes-Benz GLKs and the BMW X1, which rank second and third on the top-seller list, are also racing to make a debut ahead of the Beijing autoshow in April.

Even Lamborghini, better known for sleek supercars than boxy off-road vehicles, plans to announce an SUV at the Beijing autoshow for a 2016 launch, according to people familiar with the strategy.

Mercedes-Benz’s Maier says demand has barely been tapped.

“I would assume that this trend will continue,” said Maier, who has been at the helm at Mercedes China operations since early 2007. “I can’t see an end for the next 10 years, especially for the luxury segment.”

Click here to read this article at reuters.com