Oil prices are soaring and auto markets around the world are starting to decline due to reluctant consumer demand. The US seems to be hardest hit, but we are also hearing disturbing news concerning falling new car sales figures in Europe. So will China’s car market also be affected by the rising oil prices?
Although the Central government is tightly controlling fuel prices, prices at the pump were recently increased by nearly 18%. While this figure represents quite a large increase, it still only puts the cost of one litre of gasoline at just above 6 RMB (equivalent to 60 EUR Cent), which is below prices in the US and far below those in Europe. Fuel prices in China are still “bearable” for consumers and therefore experts do not expect a substantial impact in the short term on new car sales.
We also need to consider that car ownership in the Chinese mainland is more aspirational than in western markets and new car sales are mainly driven by first-time purchasers. For many of these buyers, the acquisition of a car is the fulfilment of a dream and we may safely assume that this aspiration will not be renounced because of the current fuel prices. Consumer spending generally implicates buyer confidence in the future’s outlook, most particularly for large scale investments and in this case, we can certainly observe major difference between the US, Europe, and China markets. This is why, overall speaking, we can continue to expect healthy growth for the Chinese car market in 2008, somewhere around 15%.
But this does not mean that current world market developments will spare China. In fact, the current discussion about the scarcity of fossil energies and the oil price hike is distracting from an even bigger underlying issue, namely: the negative environmental consequences of carbon emissions in which cars and the auto market play a major role. Expected to become the largest automotive market in the world within the next decade, China is destined to be at the forefront of the challenges to reduce pollution.
A key requirement at this point is the commitment of car manufacturers to fasten the pace in developing alternative energy solutions, as well as ensuring they are affordable for consumers. Until now, any attempt by international car makers to move towards alternative energies has been seriously hampered by high sale prices. Today, environment friendliness is reduced to a focus on the fuel economy, which we all know will not be enough over the long term.
Chinese car makers could undoubtedly take this opportunity as a short-cut to reduce the gap that still exists between foreign vehicle manufacturers with regard to “conventional” powertrain technology, and rise at eye level with their international rivals. As numerous concepts at the last Beijing Motorshow suggest, indigenous car makers appear to be quite advanced in offering vehicles powered by alternative energies and China makers have announced the sale of alternative energy vehicles at a lower price.
Chinese car manufacturers will find the local market to be ready for affordable eco-solutions. A recent TNS survey among car owners shows that 8 out of 10 car buyers who are aware of hybrid technology (76% of interviewed consumers) would be ready to purchase a hybrid car at equal price to a regular gasoline powered vehicle. Every second person interviewed would even be willing to pay a 10 percent premium.
Will China take responsibility in terms of the environment, and can Chinese car makers lead the way in alternative technologies?
For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com
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