TNS Automotive

Still room for surprise!

The Shanghai Auto Show 2009 closed just recently, and this year’s exhibition has produced record results - the largest exhibition area ever, more industry participants than any previous year, and the highest number of visitors seen yet. An amazing performance given the current economic context, and the particularly bad shape of the current global auto industry!

As always at the motor shows in Beijing or Shanghai, all attention was turned to the domestic car manufacturers, and this year’s exhibition has indeed shown us how far the Chinese domestic manufacturers have already come since they started to engage in passenger car manufacturing. We have seen new modern and fashionable models but also the establishment of new Chinese car brands, Chery and Geely, who have introduced a multi- brand strategy and launched Riich, Rely and Kerry, and Emgrand, Gleagle, and Shanghai Englon respectively.

With the exhibition theme "Art of Innovation", the organisers put environmentally-friendly technology at the centre of this year’s auto show, and "green" was a consistent colour throughout the various concept and product presentations. There is no doubt that the auto industry’s future lies in the ultimate synthesis of mobility and environmental sustainability, and indeed numerous car makers - international as well as domestic - have showcased concepts along the lines of fuel efficient vehicles, as well as alternative powertrains, to the public.

Despite noteworthy displays of environmentally friendly technologies and Chinese made car brands, the most astonishing presentations were to be seen on the stands of luxury car makers, to a large degree because they were not at all expected at this point. In a period where the recovery of the Chinese car market is widely attributed to the growing attractiveness of small vehicles, luxury brands have contributed considerably to new model launches. Examples include Audi with its new Q7, BMW with its X5 and X6 M-series, Porsche with its Panamera, Ferrari with its California, to name but a few. Luxury car makers have played upon Chinese consumers’ desire for new and high-performing vehicles considerably well. Above all, the display of these models undeniably demonstrates the huge amount of confidence that these car manufacturers have in the growth potential of the Chinese market.

There is widespread agreement that all vehicle segments in China will deliver steady growth over the long term. But luxury car makers’ investment is not only pointed into the far future, but built on confidence in a market recovery in the short term. While the reduction of purchase tax from 10% to 5% for low displacement vehicles (1.6 litres and below) has shown a positive impact for the lower-end of the car market, high-end car makers can expect that the government stimulus package, aimed at boosting the industry, will improve business development and stabilise performance on the stock market - both of which are typical sources of income for consumers of luxury cars.

It appears that luxury car makers are successfully betting on China, and their bold strategies at this year’s Shanghai Auto Show are already bearing fruit: Bentley, Rolls Royce, Maybach, Ferrari and Porsche, etc. all sold cars directly at the exhibition.

Their vehicles are not necessarily the most fuel efficient and environmentally-friendly cars, though. From previous research we understand that premium car owners are in a positive mindset to consider environmental aspects when purchasing a car. When will we see these luxury car manufacturers taking the lead in steering the auto industry as a whole towards environmental sustainability?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

www.tnsglobal.com

www.tnsglobal.com/automotive

Big remains beautiful!

After the fuel price hike last summer and the subsequent rise in consumption tax for large displacement vehicles, there were speculations that China may develop into a small car market. Since then, the economic downturn has hit the mainland but the debate remains unresolved.

Many people hail the recent sales tax cut for low displacement vehicles from 10% to 5%, introduced by the Chinese government to boost the sales of small cars, as a measure that will solve a multitude of problems. Indeed, January figures have shown a substantial increase in small car sales. However, the general elation about this alleged success distracts from the debate surrounding underlying, more structural challenges that will endanger the Chinese auto industry in the long term.

As vehicle purchase behaviour is cyclical throughout the year, the effectiveness of the sales tax cut has yet to be proven but should emerge over the next few months. However, even if small car sales remain high, there is little point in overemphasising the low end of the market. The small or zero profitability of these low-priced vehicles is likely to become problematic over time. Further to this, as small sized vehicles alone cannot fulfil the needs in the market, we cannot deny the importance of a sound and balanced market structure to deliver on existing expectations in the market, especially as it is widely believed that China will develop into the world’s number one vehicle market within the next decade.

As Chinese domestic car manufacturers are losing ground, the preferential treatment of low displacement cars is helping Chinese vehicle manufacturers to boost the sales capabilities of their products – which mainly fall into the small car category. But does this really help them to maintain their competitiveness? Foreign JV brands have already been successfully selling cars in the small car segment for quite some time. With safe and reliable technology, sensible quality and workmanship, comfortable interiors as well as affordable prices, they have undermined the position of Chinese brands. Chinese consumers choose these cars over domestic manufacturers simply because they offer much more in terms of the Chinese consumers’ needs.

Similarly, domestic small displacement vehicles do not automatically translate into fuel economy and environmental friendliness as many of the Chinese models do not yet provide the level of emission standards that foreign cars offer. Additionally, international car makers have refined conventional technology enabling them to reduce emissions in larger cars as well.

All this means that Chinese domestic car manufacturers have to commit to the importance of medium and large cars in their product portfolio. Once this has been done, they can take a closer look at their target consumers’ needs and expectations, and develop a consistent brand promise, from vehicle conception to sale, and even beyond.

There are already two Chinese players in the higher segments – Roewe and FAW – but their products are still underperforming and their brand building is weak compared with international JV brands. Have they already developed to their full potential? And when can we expect them to become a credible and serious contender in the Chinese car market?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

www.tnsglobal.com

www.tnsglobal.com/automotive

Big is beautiful!

After several measures taken by the Chinese government to limit the use of large engine displacement cars, such as the increase of fuel prices in June or the raise of consumption tax for large displacement vehicles in September, there is widespread speculation about how China’s auto market will evolve in the future. Prompted by a slowdown of new car sales over the last couple of months, many observers wonder whether China will develop towards small sized cars now. The answer to this question is a determined no.

In the near future, substantial sales volumes will still be generated in the medium and premium car segment, and even luxury cars will continue to enjoy sound development. The reason for this is simple: safety, elegance and comfort are the major product benefits Chinese consumers seek when purchasing a car, while gaining self-confidence and demonstrating success are the main purchase motivations. All these motivations require larger rather than smaller cars, and combined with quickly rising household incomes plus the Chinese preference for Da Qi (grandeur), it becomes evident as to why car sales move up-market. An increase in cost of ownership through higher fuel prices or taxes may have some short term influences, but are unlikely to restructure the Chinese car market over the long term.

Yet, we have recently observed intensified efforts from foreign Joint Venture manufacturers to enter the small car segment. At this point, virtually all mainstream car makers from the US, Europe and Japan have already launched or are about to bring an entry-level model into the China market, and thanks to intense competition Chinese consumers are able to find more and more attractive market offers below the 100K RMB purchase price mark. Car makers don’t bank too much on “down-graders”, though, i.e. consumers who choose a small car to save costs. They prefer to target the young and little affluent consumer group with modern taste and trendy style (this is why the majority of these cars are conceived with hatchback designs). In this sense, small vehicles play a vital role for establishing the brand-/consumer relationship at a very early stage within the consumer lifecycle, and setting the basis for future upgrading.

In fact, the growing popularity of small cars by itself can be seen as an upward market trend. Consumers at the low end of the market, in the process of becoming more mature, have shifted away from their demand for cheap cars – a traditional domain of Chinese auto makers – to vehicles that offer more value for money.

Where does all this leave the Chinese auto makers? In a pretty critical position! They continue to lose ground in their own (small car) stronghold and are not yet able to challenge foreign JV car makers in offering appealing mid-sized or even premium automobiles. Are Chinese car manufacturers going to be on the fringes?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

www.tnsglobal.com

www.tnsglobal.com/automotive

Green Is In!

Oil prices are soaring and auto markets around the world are starting to decline due to reluctant consumer demand. The US seems to be hardest hit, but we are also hearing disturbing news concerning falling new car sales figures in Europe. So will China’s car market also be affected by the rising oil prices?

Although the Central government is tightly controlling fuel prices, prices at the pump were recently increased by nearly 18%. While this figure represents quite a large increase, it still only puts the cost of one litre of gasoline at just above 6 RMB (equivalent to 60 EUR Cent), which is below prices in the US and far below those in Europe. Fuel prices in China are still “bearable” for consumers and therefore experts do not expect a substantial impact in the short term on new car sales.

We also need to consider that car ownership in the Chinese mainland is more aspirational than in western markets and new car sales are mainly driven by first-time purchasers. For many of these buyers, the acquisition of a car is the fulfilment of a dream and we may safely assume that this aspiration will not be renounced because of the current fuel prices. Consumer spending generally implicates buyer confidence in the future’s outlook, most particularly for large scale investments and in this case, we can certainly observe major difference between the US, Europe, and China markets. This is why, overall speaking, we can continue to expect healthy growth for the Chinese car market in 2008, somewhere around 15%.

But this does not mean that current world market developments will spare China. In fact, the current discussion about the scarcity of fossil energies and the oil price hike is distracting from an even bigger underlying issue, namely: the negative environmental consequences of carbon emissions in which cars and the auto market play a major role. Expected to become the largest automotive market in the world within the next decade, China is destined to be at the forefront of the challenges to reduce pollution.

A key requirement at this point is the commitment of car manufacturers to fasten the pace in developing alternative energy solutions, as well as ensuring they are affordable for consumers. Until now, any attempt by international car makers to move towards alternative energies has been seriously hampered by high sale prices. Today, environment friendliness is reduced to a focus on the fuel economy, which we all know will not be enough over the long term.

Chinese car makers could undoubtedly take this opportunity as a short-cut to reduce the gap that still exists between foreign vehicle manufacturers with regard to “conventional” powertrain technology, and rise at eye level with their international rivals. As numerous concepts at the last Beijing Motorshow suggest, indigenous car makers appear to be quite advanced in offering vehicles powered by alternative energies and China makers have announced the sale of alternative energy vehicles at a lower price.

Chinese car manufacturers will find the local market to be ready for affordable eco-solutions. A recent TNS survey among car owners shows that 8 out of 10 car buyers who are aware of hybrid technology (76% of interviewed consumers) would be ready to purchase a hybrid car at equal price to a regular gasoline powered vehicle. Every second person interviewed would even be willing to pay a 10 percent premium.

Will China take responsibility in terms of the environment, and can Chinese car makers lead the way in alternative technologies?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

www.tnsglobal.com

Typical Chinese?

Typical Chinese?

After its early spring gathering at the Geneva Motorshow in March the auto industry had another major meeting in Beijing, just one and a half months later. What a contrast to the setting in Switzerland, though!

The Chinese car makers have succeeded in giving an impressive demonstration of their capabilities, as never seen before. Several “green” concepts let us think that the vehicle manufacturers from the mainland have made a step forward in technological development. A closer look at their vehicles shows that they have achieved improvements regarding the quality of workmanship. What’s more, a wealth of new models proves that the Chinese car manufacturers have learned to design really attractive cars – at least in the eyes of the Western (taste influenced) beholder.

While the Chinese independent vehicle makers clearly are trying to raise their credibility on the international scene, the foreign Joint Venture manufacturers seem to focus increasingly on the Chinese market: A new brand was launched and several new medium sized models were presented, which were specifically designed for the Chinese market. This underlines the importance of China and supports the idea that the mainland is more and more considered a market with specific characteristics, which may eventually result in a fourth major distinctive automotive pole, besides the US, Europe and Japan.

Then, what are the particular aspects to be taken into consideration to attract Chinese consumers? Looking at the newly launched models that are specifically conceived for consumers on the mainland, the foreign JV manufacturers still bank on sedan-styled vehicles. They apply the principle of “Zhong Yong” – the traditional value of balance without extremes – resulting in a moderate and not necessarily very fashionable design. These cars are supposed to target rather conservative consumers (still a majority of car buyers in China today), but will most probably not succeed in attracting the new emerging group of consumers – young, and looking for modern, trendy designs.

Regarding the vehicle interior – an important area of consideration for Chinese car buyers – the JV developed new cars appear to respond well to consumer needs: equipment is preferred to be functional and simple, while the entire interior is supposed to offer space and reflect a sense of “DaQi” (grandeur).

The China-designed cars are comparably cheap. It is true that low priced cars from renowned JV brands offer an attractive value for money and will surely meet a considerable potential in the market. “Value for money” is currently the perceived strength of Chinese car makers, and offering aggressively priced vehicles with a supposedly higher quality is a plausible strategy of JV brands to counter the market positioning of independent domestic car brands.

So what does specifically designed for China mean? At present it seems to be the “package” of moderate exterior and uncomplicated interior wrapped into an attractive price. But will this be the success formula for JV manufacturers to seek more independence from their foreign partners, and take a stand against Chinese domestic brands in the long term?

Klaus Paur

Klaus.Paur@tns-global.com

www.tnsglobal.com