2020 Chinese Automotive Market Perspectives
China’s new car sales have been growing at a two-digit rate for the past decade, reaching 19.9 million vehicles purchased last year. However, due to more and more constraints – market maturation, fierce competition and local restrictions over car sales – its growth rate is unlikely to exceed 10% per year during the next decade. How should OEMs adapt?
- Differentiate your products
It will ease the competition and enable you to increase your profit margins.
- Build a strong brand name:You may want to use the Chinese’s fondness for internet to your advantage. Each year, they are more numerous to check for feedbacks online: maintaining high quality standards and promoting it on the web will strongly benefit your brand image.
- Offer variations to your standard model:Variations are still underdeveloped in China, painfully reaching 1500 combinations when 400 trillion of them are available in Germany.
- Move upmarket: Diversifying your offer to reach luxury products may also result in huge benefits for you: luxury car market is expected to grow by 11.5% per year from 2013 to 2020, which is likely to exceed 10% of the total car market. Even if you do not want to go for the luxury segment, offering premium services is a must, as the demand for it will increase.
- Change your business model
Sale-oriented businesses will not be able to generate as much profit as in the past. Therefore, changing your model to be more service-oriented could improve your profit margin.
- Offer credit and insurance services: It is still largely underdeveloped in China. Succeeding in implementing these services would help you to reach new customers.
- Develop after-sale:It could be worth having deeper thoughts about how to make profit on it, despite the difficulties to introduce it in the Chinese culture. Currently, after-sale is commonly seen as a signal of poor quality products in China: if the product is good, why would it need after-sale services? Therefore, if you want to appear as a high-standard brand, after-sale is delicate to implement in China.
- Prepare for used car market:Used car market is very likely to appear during the next decade, since there will be more and more second-time buyers looking to trade their old car for a new one.
- Go for Tier 2 and Tier 3 cities
With rising production costs, growing importance of R&D and recent restrictions in the number of cars allowed in Tier 1 cities, concentration will increase, leading to an intensified competition. A good way to escape it will be to go for smaller cities, where potential first-time buyers have not been reached yet. A large part of Chinese population is still to be conquered, with only 183 cars for 1000 people, against 500-800 in developed countries.