The Chinese market — opportunity, downside and potential competitive threat. For car manufacturers and automotive suppliers, the only risk greater than competing in China is: not competing in China.

China still represents the best opportunity in the world for large-scale growth in automotive sales. However, signs of deceleration in the country’s economic expansion, hints of overcapacity in manufacturing and troubling ownership trends among consumers indicate that the good times may not last forever. Moreover, China could transition from being a potential market to a competitive threat as domestic carmakers seek to export their wares to other regions.

For automotive planners, the key to building a successful strategy in 2015 requires an understanding of: China’s economic outlook, the structure and capacity trends of its manufacturers and the factors that compel its consumers to buy cars. Planners must also prepare for different scenarios of economic expansion and car ownership and anticipate the influx of Chinese competitors in their home markets.

China will remain the engine of global automotive industry in the coming years, despite its slowing economic growth. Car sales in China are estimated to surge to 29.9 million units in 2019, up 27 percent from 23.5 million in 2014. Putting this further in perspective, Chinese car sales in 2015 will grow by 1.7 million units, which is about 50 percent of the size of the entire German market at 3.2 million. Thus, China will add the equivalent of half of Germany’s car business during this year alone.

A major issue that should concern automotive planners is the sustainability of Chinese demand for cars. Cultural attitudes toward car ownership and government restrictions may inhibit automotive purchasing in some regions of the country.

Car ownership is viewed as a practical matter in many countries. But in China, a car often represents a middle-class status symbol. Chinese motorists often have little need for automotive transportation and may actually rarely use their cars. As a result, Chinese car owners may replace their cars at a lower rate than owners in other countries. Consumers in China may also be open to alternative forms of auto ownership such as car sharing.

Meanwhile, many major Chinese cities have reached full capacity for car licenses. Car makers operating in those regions may need to shift to new consumer bases and accommodate drivers in other parts of country. These trends could dramatically impact automotive sales growth.

In 2014, 55 percent of the cars operating in China were in the coastal region, with the remainder in the central and western areas of the country. By 2016, the coastal region will decline to 49 percent.
As of January, seven cities had license plate restrictions in force. These restrictions now cover a wealthy urban population of more than 85 million people.

The number of registered passenger vehicles in Chinese cities that have implemented license plate restrictions is set to decline in the coming years, falling to 1.6 million in 2019, down from a peak of 2.2 million in 2010. Meanwhile, registrations in other parts of China are likely to soar, increasing to approximately 23.7 million in 2020, up from 10.8 million in 2010.

Auto OEMs are shifting their focus to new regions of China. For example, a car manufacturer in June of 2014 announced the opening of 88 new dealerships in one day — with the primary focus on less-competitive Tier 4 cities that lack license restrictions.

In its latest China Provincial Forecast, IHS provides automotive planners with a solid foundation on regional market developments – provinces that will step up and those that will decline. A must-have tool to thoroughly support decisions for investments in the right regions at the right time. Preventing investments with little return.

Overall, the market situation in China remains positive and the outlook for growth continues to be optimistic. Still, automotive strategic planners should remain alert to the increasing challenges and risks of operating in the country.