Route different, but bull run set to continue

08:36, January 24, 2011      

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Range of dampening effects offset by demand in rural areas and smaller cities

China defended its position as the world's top automotive market in 2010, with sales breaching 17 million units - another new record.

A total of 1.2 million passenger vehicles were sold last December, 19 percent higher than a year ago, taking full-year sales to 11.9 million units.

Light commercial vehicle demand rose 20 percent year on year to 448,000 units in December. Full-year demand increased 25 percent to 5.3 million units.

Medium and heavy commercial vehicles registered astounding growth of 42 percent to reach 1.4 million units in 2010.

Growth in sales of imported passenger vehicles outperformed the locally produced cars, with the total registered volume surging nearly 80 percent to 640,000 units. The majority of the demand for imported vehicles came from coastal cities.

The launch of models with small engine displacements between 1.5 and 2.5 liters and entry-level models such as the Mercedes-Benz B-Class, Audi A3 and BMW 1-Series helped drive the rapid growth in the import market.

Export demand also rose as the global economy began to recover in 2010.

Exports below 2008

A total of 283,000 passenger vehicles and minibuses were exported, accounting for 2 percent of the nation's total production. Yet total shipments have yet to return to the 319,000-unit level achieved in 2008. Chery, Chang'an and Great Wall contributed to the majority of the export volume.

In the domestic market, compact cars remained the favorite for most Chinese consumers. More than 4.9 million compact cars were sold last year, up 41 percent from 2009.

SUVs, with sales nearly doubling to 1.7 million units, became the third-largest segment. Sales were driven mainly by a wave of demand for replacement and additional purchases. MPVs and luxury cars enjoyed similar growth in 2010, much higher than passenger vehicles.

Looking at the brands, we see Volkswagen and Wuling still led passenger vehicle and light commercial markets, although both lost market share in 2010. While the Lavida and Sunshine remained on the list of bestsellers, increasing competition saw the market becoming more and more fragmented.

Most of the major global brands underperformed the market average in 2010, with the exception of Chevrolet, Audi, Kia, Citroen and Skoda. They retained strong growth thanks to successful introductions of new models such as the Chevrolet New Sail, Audi Q5 and Citroen C5.

Other leading brands including VW, Toyota and Hyundai found it more difficult to grow further due to their aging models.

In contrast, Chinese brands developed faster in 2010 with their market share in the passenger vehicle segment reaching 34 percent from 31 percent in 2009.

But leading Chinese brands Chery, Geely and BYD recorded slower growth than the average. Smaller brands such as FAW, Great Wall, JAC, Chana and Roewe, enjoyed remarkable growth of more than 60 percent in part due to their low beginning baselines. Fast expansion of their dealership networks in second- and third-tier cities was also a crucial factor.

The narrowing gap between the Chinese brands and global brands in quality, design and service helps explains why Chinese cars are gaining more market share, as noted in JD Power's latest customer satisfaction studies.

The latest batch of sales data has not changed our outlook for the market. We expect more regulations to come into effect to control vehicle numbers in big cities.

Retail fuel prices have climbed to historic highs and interest rates are expected to keep going up to rein in inflation.

But rising incomes in smaller cities and rural markets have been and will continue to be a key driving force for growth. This strong demand - both in the replacement market and new purchases - should be enough to ensure the bull run continues.

The author is a senior researcher at JD Power and Associates

Source:China Daily
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