Automakers are strategically targeting different trends in China to gain sales growth in an increasingly competitive market.
IHS Automotive perspective | |
Significance | The main trends at play include appealing to the younger generation of Chinese consumers, the executives who continue to want long-wheel-base models and the family-car buyer who generally wants sport utility vehicles (SUVs), and by offering PHEV variants the OEMs are also appeasing the Chinese government. |
Implications | With onus on the government to reduce congestion and pollution, restrictions on vehicle sales in major growth cities will dampen sales growth in China, but SUVs continue to see higher growth rates, while alternative credit options with auto finance are also on the increase as the consumer market in China advances. |
Outlook | IHS Automotive has raised the overall growth forecast for 2015 for the PV segment from 8.3% year on year (y/y) in our previous forecast to 8.9% y/y. However, this is still lower than the market witnessed in 2014, and the main reasons are that vehicle sales restrictions are increasing in major cities in China. |
A number of trends are at play in China. Automakers have begun to segmentalise the Chinese car buying market into different growth areas and then have begun to create products targeting those consumer groups specifically. This marks a major shift in strategy at play by automakers in China. A decade ago international automakers were content with introducing existing models to Chinese buyers, and for the most part the buyers were happy to lap them up as the market was in its infancy and buyers suddenly had access to purchase their own car. But today the market is different. The growth rates are lower, the consumers are better aware and the automakers have begun to cater specifically for select target groups within the large Chinese consumer market. Even local Chinese automakers have begun to ditch the old method of imitating models from the developed markets, and the ones that are seeing sudden growth have developed models specifically for their local consumer base.
Attracting young Chinese buyers
The young Chinese are different to their parents and the older generation. They are tech savvy, well informed and command better products. They are confident and aware of their potential, and are also more open to accepting alternative methods to buy models in a higher price range than their savings would allow. These are the consumers termed the ‘balinghou' - or those born in the 1980s and the ‘jiulinghou' – those born in the 1990s. The two groups share common characteristics of being single children born following the introduction of the One Child Policy in China. The 'balinghou' generation is considered China's 'Generation Y' and is a group that faces immense pressure from their parents to provide for the entire family and to surpass their parents in terms of financial success. The 'jiulinghou' generation is considered far more fun-oriented and open to greater flexibility in terms of traditional Chinese values.
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Nissan Lannia. |
At this year's Shanghai Motor Show (22-29 April), a number of OEMs are displaying vehicles that are specifically aimed at this younger target market. The Nissan Lannia, as the first product developed and designed for the young Chinese generations, especially those in their 20s and 30s today who are seen as energetic trendsetters, is a tangible expression of the company's commitment to China, says the automaker. Evolved from the Friend-ME concept and Lannia Concept which debuted in China in 2013 and 2014, respectively, the Lannia's design development primarily was led by the Chinese talent from Nissan Design China, who identified with the young Chinese generation and were able to infuse the global experience and capabilities of the Nissan Global Design Center into the design. Inside the car, design teams created a driver-centric cockpit to enhance the comfort and overall experience of the person behind the wheel. To address the generations who rely on technology to stay connected to their friends at all times, connectivity was a key focus in Lannia's development. Lannia features integrated infotainment technologies, including an advanced audio system with smart-phone connectivity and a 7-inch multimedia display screen. This system was developed by Nissan's research and development team in China and will be available exclusively in China.
Automakers are therefore gearing their models for this consumer group, fitting the next-generation vehicles with in-car technologies to appease this younger consumer group. As a result, automakers are increasing the amount of apps on offer for vehicles in China.
General Motors' (GM) Shanghai OnStar has debuted its new blueprint for in-vehicle people-machine interaction, introduced as "Xiao O", which it says will inject a more emotional element into smart OnStar functions. The Xiao O has embedded cloud voice remote control, which offers an interactive experience enabling users to obtain information and reminds them when service is recommended. Customers can use voice commands to check the weather, traffic conditions, and odd-even licence plate restrictions, and to start their vehicle remotely.
Attracting family-car buyers
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Baojun 560 SUV. |
The sport utility vehicle (SUV) segment continues to bring in increasing numbers of players. Often automakers are combining offering SUVs for family use and highlighting that these can also be alternative fuel vehicles. In China, the large interior space and higher chassis offer family-car buyers a feeling of space and safety. The vehicles are seeing a strong sales growth trajectory in the country, although this is likely to slow.
A number of new SUVs have been launched at the Shanghai Motor Show, including the Baojun 560 (see China: 20 April 2015: Venucia debuts VOW concept, Baojun displays 560 SUV). In addition, Nissan has announced the new Murano plug-in hybrid electric vehicle (PHEV), once again appeasing two trends at play in China. The car will be available for sale from this summer, the automaker says.
Attracting Chinese executives
The long-wheel-base (LWB) sedan segment is by no means being ignored at the show. Automakers are developing models to specifically cater to the executives who want every possible luxurious feature within their vehicles. The premium brands such as Lincoln, Infiniti, and Cadillac are all showing models that are catering to this well off consumer group (see China: 20 April 2015: Lincoln, Infiniti display models to attract affluent buyers). However, there are also mainstream brand models that automakers are styling to attract business executives.
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Ford Taurus. |
The new flagship model from Ford, the Ford Taurus, is aimed at attracting business executives in China. The Taurus, a new premium business sedan for Ford in China, will be produced at the automaker's new USD760-million Hangzhou manufacturing facility. "The new Taurus shows off the very best of Ford's global design and development expertise in a large sedan uniquely suited to sophisticated customers in China," said Marin Burela, president of Changan Ford Automobile Co. "We're proud to call it our flagship sedan."
Appeasing government
The Chinese government wants to show that it is committed to a clean-air environment. Its aim is to be seen as a leader in clean and green technologies and that by 2020 it will be one of the major promoters of new energy vehicles (NEVs) with over 5 million on the country's roads. Therefore, it wants automakers to innovate and build NEVs in China. The government offers subsidies to buyers to encourage them to buy these vehicles, and automakers are now trying to adapt and build models to meet the government's wants. Volkswagen (VW), for example, has announced it will produce more than 15 NEVs in China; that is, models that are either PHEVs or pure battery electric vehicles (EVs) in the next four years (see China: 20 April 2015: VW Group debuts four new models, displays 36, Q1 sales up 2% in China).
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Cadillac CT6 PHEV. |
General Motors (GM) will, for example, add a PHEV propulsion system to its CT6 sedan, which is to be built at the new Cadillac production base in Jingqiao , China. "The first-ever CT6 is a technological showcase throughout, making it an ideal platform for Cadillac to offer its first plug-in hybrid," said Cadillac president Johan de Nysschen. "In the CT6, Cadillac presents a new formula for prestige luxury." The car can run for 60 kilometres on the electric range and is fitted with a 18.4 kWh lithium-ion battery pack paired with a 2.0-litre turbo, 4-cylinder gasoline (petrol) engine. The locally produced model will be eligible for Chinese government subsidies. Others such as Volvo and Audi are also offering PHEV variants on the LWB models, thereby aiming to appeal to the business elite as well as the government (see China: 20 April 2015: Volvo to launch S60L PHEV, Audi to introduce A6L and Q7 e-tron).
The number of PHEV models being offered is on the increase as automakers see plug-in hybrids as a stepping stone to the electrification of the vehicle fleet. PHEVs offer consumers the choice of using either the electric or gasoline mode, thereby appeasing the conscience for the environment but reducing any range anxiety felt with a pure EV. Once again, OEMs are also offering family-oriented SUVs with PHEV variants in a bid to appease environmentally conscious buyers as well as the government.
Outlook and implications
Automakers, both international and domestic, are now strengthening product offerings for particular target groups in China. The additional PHEV variant on offer for a number of new models highlights the OEMs' aim to appease the Chinese government. This also allows for better corporate average fuel economy (CAFE) ratings as the OEM's vehicle fleet will have more alternative fuel variants on offer.
The trends are also significant as they allow automakers to brand and advertise for these specific consumer target groups, a strategy that has only come into play within the last few years in China. Prior to this, OEMs introduced models which were created for other markets, not with the current ‘China specific' attributes that almost every automaker is touting in China today.
IHS Automotive has raised the overall growth forecast for 2015 for the passenger vehicle (PV) segment from 8.3% year on year (y/y) in our previous forecast to an 8.9% y/y growth rate. However, this is still lower than the market witnessed in 2014, and the main reasons are that vehicle sales restrictions are increasing in major cities in China. These cities, traditionally high sales growth areas, are limiting the sale of new vehicles per year as the pressure mounts for the government to curb pollution and congestion levels. The use of licence plate restrictions will dampen new vehicle sales in cities such as Chongqing, Chengdu and so in.
IHS Automotive continues to forecast overall growth for the SUV segment in China, although growth rates are slowing. In 2014, China's SUV production rose 36.72% y/y to 4.32 million units. This year, we forecast China's SUV production levels to rise by around 22.5% y/y; however, SUV production growth will then begin to slow. Double-digit growth in SUV production is forecast to continue to 2017, when SUV production levels in China are expected to hit over 6.6 million units per annum (upa). From 2018, production growth rates are predicted to slow to single digits, although output will reach more than 7.04 million upa.
But despite the strong growth of the SUV segment, the overall market growth levels are cooling. As a whole, we maintain our position that growth of PV sales in China will slow down further to an 8.9% y/y growth rate in 2015, compared with 11.7% growth witnessed by the PV segment in 2014. Total PV sales are forecast to hit 19.67 million upa this year.