Chinese vehicle sales rise, local OEM Chery sees demand drop – CAAM

The overall vehicle market in China grew by double digits in April to more than 1.8 million units, an annual increase of 13.38%, according to data from the China Association of Automobile Manufacturers (CAAM). However, some automakers are seeing slower growth as increasing competition is leading to growing market share for the stronger players.

The top-15 auto manufacturing groups continue to be led by Shanghai Automotive Industry Corp (SAIC), which has joint ventures (JVs) with Volkswagen (VW) and General Motors (GM) in China. In second position is Dongfeng Group, which has JVs with PSA Peugeot Citroën, Honda, Nissan, and Kia, while in third spot is First Automobile Works (FAW) Group, which also has JVs with international players VW and GM, as well as Toyota. Changan Group and BAIC also have JVs with international automakers as does Guangzhou Automobile Group Co (GAC). Local Chinese automakers Great Wall, Chery, Jianghuai Automobile Group, Lifan, and Geely rely on their own in-house branded models for sales growth. As competition in China increases, these players will increasingly need to introduce models to compete with those on offer from the international brands present in China.

Chery's demand continues to drop

Chery continues to see falling demand, as the automaker relies on models built a few years ago – while the number of models has risen across the market, Chery still relies on sales of its mainstay models. In the passenger-vehicle segment, for example, Chery's sedan sales were 23,370 units in April, down 32.06% y/y, while its year-to-date (ytd) sales were 128,653 units, a drop of 5.41% y/y. In the sport utility vehicle (SUV) segment, Chery's sales were 6,831 units, a decline of 31.89% y/y, while its ytd sales in the segment were 32,330, down 20.29%. In the multi-purpose vehicle (MPV) segment, Chery's sales of 636 units in the month were 23.98% y/y up, while ytd sales were 2,162 units, down 11.18%.

Chery is aware of the situation and has hired international automotive designers to revitalise its line-up. Wang Zeng, IHS Automotive light vehicle analyst in Shanghai, says that in the past Chery would hire international design houses to help with the styling of its models, but now the Chinese automaker has brought in international designers to work from within the company. Earlier this year, Chery appointed Hakan Saracoglu as chief designer at its Shanghai design facility. Saracoglu now works alongside James Hope, who oversees design at the Chinese automaker. Saracoglu joined Chery from his previous role at Porsche, where he had worked since 1998. Prior to this he worked for Ford at its design studio in Cologne, Germany. "After 15 years at Porsche, where I had the great fortune to work on many successful projects culminating with the 918, I felt ready for a new challenge," Saracoglu told Car Design News. "To be able to directly influence the development of a young Chinese marque through design was the key motivation for my decision." Hope was previously assistant chief designer at GM's Exterior Design Studio in Russelsheim, Germany, and in 2012 was recruited to join Chery. Therefore, Chery no longer has to rely on the services of design houses such as Pinninfarina, which helped it develop the A3 car.

IHS Automotive interviewed James Hope and Hakan Saracoglu at the recent Shanghai Auto Show. Hope said: "We both worked in Germany in a very structured society – here it is a bit more organic." The new Chery Tiggo TX Concept is a model Hope has been heavily involved in. "It is a show car to try to figure out Chery's future direction," he said. When asked about any current new production cars, Hope said: "There are quite a few new production cars – a lot of new cars in the pipeline." With regard to the type of design to expect and whether to look at the designers' portfolios to anticipate the new models, Saracoglu clarified that the new models "might be Chery-specific". He added that the automaker is looking at different applications, such as colour, for different markets.

Chery is strengthening its presence in markets outside of China with brand awareness campaigns and is investing in new production plants in markets such as Brazil. However, Chery's export growth is also slowing as the automaker faces increasing competition globally. In April, the automaker exported 12,918 units, a decline of 23.15% y/y, while Chery's exports in the first four months dropped 9.66% to 46,234 units, the latest data show.

So, although Chery was the largest exporter in the first quarter and saw export growth in the first three months, exports in April declined for the automaker (see China: 20 May 2013: China's passenger vehicle exports rise in Q1, with Chery, Geely, and GM the biggest players).

Passenger vehicle sales continue to rise

The vehicle market in China is mainly propelled by the passenger vehicle segment and slowed by the commercial vehicle market (see China: 20 May 2013: China's passenger vehicle sales increase 13% y/y in April – CAAM). In April, sales of sedans rose 9.73%, while cumulative sales in the first four months increased 14.54% to 3,953,411 units, according to data from the CAAM. Sales of multi-purpose vehicles (MPVs) rose by 107.3% y/y in April to 88,943 units, while ytd sales increased 139.39% to 398,768 units. The SUV segment saw monthly sales of 227,955 units, up 45.66% y/y, with ytd sales of 861,413 units, up 44.06%. Meanwhile, sales of minibuses – counted as passenger vehicles by the CAAM, but included in IHS's data as commercial vehicles – dropped 20.82% y/y in the month, and ytd sales dropped 21.81%.

Sedan C-segment still largest volume segment

Within the market, the largest volume segment continues to be the sedan C-segment. The car C-segment as defined by IHS Automotive remains the largest volume-selling segment in China's automotive market. In April, sales in the segment grew 17.7% y/y to over half-a-million units. On a year-to-date basis, sales were up 23.63% y/y to more than 2.3 million units. In April, the top-selling model was the VW Lavida, the sales of which rose 69.67% y/y to 33,933 units, beating the Ford Focus, which sold 30,673 units, up 40.75% y/y. In third spot was the Toyota Corolla with 25,354 units sold, down 6.12% y/y. The Buick Excelle from GM was fourth with sales of 25,336 units in the month, up 9.3% y/y. In fifth, sixth, and seventh places were VW models – the Sagitar saw sales rise by 107% y/y to 20,615 units in the month, followed by the Jetta and the Bora. On a year-to-date basis the top-selling model was the VW Lavida with sales up 99.32% y/y to 155,423 units, beating the Ford Focus, which saw sales rise 113.56% y/y to 126,853 units. The Buick Excelle was third with sales of 100,076 units, up just 0.52% y/y, beating the Toyota Corolla, whose sales declined by 11.98% y/y to 90,241 units in the first four months of the year. VW's Sagitar was in fifth spot with sales of 89,419 units, up 165.95% y/y. The VW Jetta came next, while BYD's F3 edged up the chart, its sales growing by 65.79% y/y in the first four months to 79,783 units and lifting it to seventh place. Eighth spot was held by VW's Bora, while in ninth was the Hyundai Verna, followed by the Chevrolet Cruze from GM.

Outlook and implications

Chinese in-house brands are under pressure to step up to the challenge of competing with international brands. The Chinese government has started to reiterate that it wants local players to become international names and to raise the level of in-house technical capabilities. This has led to new acquisitions, as well as the hiring of international experts by Chinese OEMs. However, the major international brands are also stepping up their strategies to increase sales and market share in China, with VW and GM both announcing investments and emphasising commitment to growth in China.

Chinese brands and automakers continue to pin hopes on increases in sales in the interior of China, as well as in emerging markets outside of the country. However, exports remain a low single-digit percentage of total vehicle sales and international automakers are now ramping up their dealership networks and production plants in China's interior, threatening the local players' positions in those regions.