Shanghai Motor Show 2013: Fighting for the Chinese consumer

The Shanghai Motor Show opened to the press and VIPs on 20 April, with every automaker – international and local brands, existing players and new entrants – competing for the Chinese consumer. This battle has automakers strategically choosing specific target customers for their different models. The main segments in which competition is exceptionally fierce are those that see huge volume sales and double-digit growth rates: the C segment, the SUV segment, and the premium segment.

The total passenger car market, which includes sedans, SUVs, and multi-purpose vehicles (MPVs), saw sales of 3.7 million units in the first-quarter 2013 period in China, according to IHS Automotive data, with an annual increase of 19.4% year-on-year (y/y). Total light vehicle sales of locally produced models hit 4.98 million units, up 11% y/y.

Battle for the C segment and the volume market

IHS Automotive data shows that in the first quarter of this year, sedan sales in the C segment (C car segment) increased by 26.4% y/y, with sales in the first three months of the year hitting 1.77 million units, up from the 1.4 million locally produced C car models sold in the first-quarter period of last year. The C segment therefore accounts for 47.7% of the passenger car market in China, according to our data.

Ford's "all-new Mondeo" is looking to raise its profile in the C segment, where it is fighting to gain more volume sales. In 2012, the Ford Focus was the bestselling model in the segment, but the overall winner for total volume sales was Volkswagen (VW), which has a number of models in the segment. "We've gone further in every aspect to bring to China the most premium Mondeo we have ever designed, developed, and built," Marin Burela, president and CEO of Changan Ford Automobile, said at the show. "It's truly a flagship car." However, VW's Lavida has taken over from the Focus as the bestselling model in the segment in the first-quarter 2013 period with sales of 121,490 units; in comparison, the Focus saw sales of 96,180 units in the quarter, our data show.

VW is pulling out all the stops to maintain its position, and increase market share in the segment and the overall Chinese market. The automaker sold 766,918 units in the locally produced passenger vehicle market in the first quarter of 2013, according to our data, making it the strongest player. The VW brand saw overall sales of 618,316 units in the period, up 36% y/y.

VW's presence at the auto show cannot be missed. The automaker has almost taken over the W5 hall with bright colours and its range of brands, starting with the Audi e-tron quattro and a line of new models, such as the A3 and the S3. Audi aims to sell 700,000 units in China by 2020 after seeing first-quarter sales up 17.6% y/y, the automaker told IHS Automotive at a preview event. "Audi is no longer a brand of the black limousine," Deitmar Voggenreiter, president of Audi China, said.

Brands such as SEAT and Skoda have seen new models brought in, while VW is pushing its allegiance to the EV trend in China, with a range of models sporting EV and hybrid plug-in versions. The automaker has announced a EUR9.8-billion (USD12.78 billion) investment for China, with seven new plants, five of which will open this year, and a target to increase production in China to over 4 million units in 2015. The automaker will push its "multiple-brand strategy" with 12 brands, of which nine are passenger vehicle brands, according to Jochen Heizmann, who heads up VW China. "By 2015 we want to increase our offering to over 90 different models (in China)," he said. The automaker is targeting growth in the tier 3, 4, and 5 cities, which he says have the "biggest growth potential in coming years". VW's new production base in Urumuqi in the west of the country will see the automaker there before anyone else, he claims. "Tier 3 and tier 4 cities are going to be the battlefield, the bread and butter for all of us," said Weiming Soh, who heads up VW sales in the country.

The C segment also sees the launch of the Qoros 3 sedan, the newest player in the segment. At the show, the brand will benefit from its position directly opposite Audi in the W5 hall – a room that is predominantly the domain of VW.

The SUV segment

With fast growth, the SUV segment continues to invite strong competition. In the first-quarter period, the segment saw sales of 633,462 units, up 43.46%, according to the China Association of Automobile Manufacturers (CAAM).

SAIC Motor revealed its new MG CS, which is aimed at garnering sales in China and abroad. Speaking at the launch, Tony Williams said that the new CS SUV embodies subtle style and elegance based on its iconic British heritage, and likened the model to "Wellington boots", which he claims are now a high-end fashion statement, but well-grounded. No laughs were heard among the Chinese listeners in response to his observation; it is likely his humour was not understood by the audience or the translator.

General Motors (GM) is now becoming a force to be reckoned with in the SUV segment. At the show, the automaker stated its strategy involves a strong line-up in the segment. "It's no secret SUVs have become popular in China," said Bob Socia, president of GM China and chief of operations for China, India, and Asean. "In fact, SUV sales are expected to double by 2020 and reach 4 million units," he said, adding, "Sales of SUVs rose more than 25% last year to over 2 million units. It was the fastest-growing segment in the market." GM now has five SUVs in its line-up, but more are on the way, he confirmed. "The Encore joins our other SUVs for China, the Cadillac SRX and Escalade, Chevrolet Captiva, and Buick Enclave. Sales for these five SUVs combined in the first quarter were almost three times the number we sold in the first three months of 2012. That shows our SUVs are gaining popularity with consumers," he said. "To keep up with increasing demand, GM plans to introduce nine new or refreshed SUVs in China in the next five years."

Ford is also strengthening its presence in the SUV segment. "We have a whole family of SUVs (in China)," Dave Schooch, Ford Group vice-president for Asia-Pacific, told IHS Automotive. The automaker has launched local production of the Kuga and Ecosport, a smaller B segment SUV. "We have buyers out there who have purchased a small sedan, now they want a SUV. We think the Ecosport will hit a white space," he said.

Audi has also just started production of the Q3 and will soon bring out the updated Q5, both locally produced.

The green trend

Toyota's exhibition area illustrates its commitment to the future green revolution in China. Takeshi Uchiyamada, vice-chairman of Toyota China, reiterated the company's commitment, saying, "China is a cherished neighbour," and adding that he will personally strive to bring more green models to China. "In 2011, wanting hybrid technologies to become firmly rooted in China, Toyota decided it would conduct local development and production of hybrid components. For this, Toyota Motor Engineering & Manufacturing (TMEC) was established. The Yundon Showanchin II being unveiled here today is a hybrid vehicle for China developed with TMEC." Toyota has on display a range of EVs and hybrids, together with charging posts. The new RANZ brand takes centre stage.

Meanwhile, Kia has also revealed its new brand for China, the "Horki", which will see the first production model in 2015. "Horki's product portfolio will be comprised of a range of vehicles, including an alternative powered one," the automaker said.

International and local automakers are all showing their commitment to the EV trend. VW and GM are exhibiting a range of their models with EV and hybrid variants, together with charging posts, as is SAIC. Chery is showing a couple of urban mobility vehicles, while the FAW Hongqi brand's new black H7 model with a

PHEV variant will no doubt be targeted at the new heads in the Chinese government.

Outlook and implications

The Shanghai Motor Show showcases a wide range of models, with every segment seeing strong competition. Automakers already present in China are now using their foothold in the market to expand products and brands in the country, as well as targeting the interior of China and the smaller tier cities, which are likely to see higher growth rates as the drive for urbanisation across China takes hold. The Chinese brands are continuing to seek allegiance with the government and have shown their commitment to the green revolution, and FAW is obvious in its desire to be the choice big black sedan model for the ruling elite.

The sheer number of vehicles at the show is testament to the automakers fighting for the attention of Chinese buyers, with displays of model after model belonging to the same automakers sending a clear message: we have a model for every type of Chinese buyer. Shanghai continues to be the main display arena for vehicles in China, and local and international players are competing for the second and third car-buyers in cities such as Shanghai, as well as first-time buyers in the interior.

IHS Automotive data shows that the total light vehicle market in China, which includes passenger and light commercial vehicles, is likely to grow to 25 million units in 2015, up from 18.9 million in 2012. Bright paint jobs, new technical gadgets, and interactive technology, as well as sleeker lines, show that automakers are targeting young, independent-minded, Chinese consumers on the whole. SEAT, for example, is targeting tier 2 cities such as Chengdu and Xian, with young buyers who are "open to new brands" in mind, while Ford says buyers in China begin once incomes hit the USD5,000-6,000 mark. The love of personal mobility has gripped China and customers continue to use cash for the majority of vehicle purchases, although international automakers emphasise they offer credit. Some 80–85% of Ford buyers still use cash for purchases, Schoch said of the Chinese buyer, while VW's Soh said that of every 10 cars sold, more than eight were paid for in cash. Every segment, every region, and every international auto player is out to gain ground in the battleground that is China.