2012 Chinese Car Market Predictions

In my first post I would like to give my predictions for the Chinese car market in 2012. I’m not sure about in China, but in Western countries it is something of a tradition for people in the know to give their outlook for the year ahead. So here goes with my five maos’ worth.

One of the most noticeable themes of 2011 was the slowing of the market. Whilst final figures for the year are yet in they are likely to show a growth in sales of around three percent. This is a far cry from the 32% increase experienced in 2010.

The key question for 2012 is whether we can expect a year similar to 2011 or will see a return to double digit growth? There are a number of reasons that high growth rates are unlikely. In the absence of government subsidies for smaller cars or cars to the countryside there will be little incentive for first time buyers. High fuel prices will also likely deter many such potential customers.

Even more crucial is likely to be the macro economic question of the Chinese economy. Speculation is rife as to whether the economy is indeed slowing and if it is whether a soft landing can be engineered. With the United States and Europe in economic disarray it is likely that Chinese exporters will face increasingly tough times. Will the Chinese consumer be able to fill the breach? With property prices tumbling in many large cities this is looking increasingly unlikely. Without a social security blanket many consumers are likely to be belt tightening in anticipation of problems ahead.

Therefore I think at best we will see low single digit growth in car sales this year. However, if economic growth seriously dips and China experiences a hard landing then sales may well decline in the next year.

What does this all mean for manufacturers? Well without significant market growth they are going to be slugging it out for market share in order to grow their sales. If we can learn anything from 2011 then it is likely to be the joint venture companies who are the winners. Despite low growth, figures from earlier in the year show that sales for most domestic producers were down.

New brands created by joint ventures are likely to take many first time customers in third of fourth tier cities who might otherwise have bought a domestic brand’s offering. New rules though may finally push government procurement to favour domestic brands. This could give a boost to companies who have created more upmarket larger vehicles.

Domestic producers are going to be further pressed as JVs introduce more advanced technology, such as DSG transmission, on their Chinese produced vehicles. The domestic companies who will be the winners are those that invest sufficiently in the R&D or buy the off the shelf technology to counter this.

2012 will certainly not be the year of the electric car in China. As evidenced by the final consumer launch of the BYD e6 they are generally far too expensive for private customers and unless government procurement is led this way they will remain a very small niche.

Speaking of niches, in what is likely to be an increasingly competitive market, there will be more cars such as crossovers, and wagons trying to garner any possible sales by filling every conceivable market.

Whilst China is likely to remain the world’s largest car market in 2012 it is going to be a bumpy ride.

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