TNS Automotive

Big remains beautiful!

After the fuel price hike last summer and the subsequent rise in consumption tax for large displacement vehicles, there were speculations that China may develop into a small car market. Since then, the economic downturn has hit the mainland but the debate remains unresolved.

Many people hail the recent sales tax cut for low displacement vehicles from 10% to 5%, introduced by the Chinese government to boost the sales of small cars, as a measure that will solve a multitude of problems. Indeed, January figures have shown a substantial increase in small car sales. However, the general elation about this alleged success distracts from the debate surrounding underlying, more structural challenges that will endanger the Chinese auto industry in the long term.

As vehicle purchase behaviour is cyclical throughout the year, the effectiveness of the sales tax cut has yet to be proven but should emerge over the next few months. However, even if small car sales remain high, there is little point in overemphasising the low end of the market. The small or zero profitability of these low-priced vehicles is likely to become problematic over time. Further to this, as small sized vehicles alone cannot fulfil the needs in the market, we cannot deny the importance of a sound and balanced market structure to deliver on existing expectations in the market, especially as it is widely believed that China will develop into the world’s number one vehicle market within the next decade.

As Chinese domestic car manufacturers are losing ground, the preferential treatment of low displacement cars is helping Chinese vehicle manufacturers to boost the sales capabilities of their products – which mainly fall into the small car category. But does this really help them to maintain their competitiveness? Foreign JV brands have already been successfully selling cars in the small car segment for quite some time. With safe and reliable technology, sensible quality and workmanship, comfortable interiors as well as affordable prices, they have undermined the position of Chinese brands. Chinese consumers choose these cars over domestic manufacturers simply because they offer much more in terms of the Chinese consumers’ needs.

Similarly, domestic small displacement vehicles do not automatically translate into fuel economy and environmental friendliness as many of the Chinese models do not yet provide the level of emission standards that foreign cars offer. Additionally, international car makers have refined conventional technology enabling them to reduce emissions in larger cars as well.

All this means that Chinese domestic car manufacturers have to commit to the importance of medium and large cars in their product portfolio. Once this has been done, they can take a closer look at their target consumers’ needs and expectations, and develop a consistent brand promise, from vehicle conception to sale, and even beyond.

There are already two Chinese players in the higher segments – Roewe and FAW – but their products are still underperforming and their brand building is weak compared with international JV brands. Have they already developed to their full potential? And when can we expect them to become a credible and serious contender in the Chinese car market?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

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Big is beautiful!

After several measures taken by the Chinese government to limit the use of large engine displacement cars, such as the increase of fuel prices in June or the raise of consumption tax for large displacement vehicles in September, there is widespread speculation about how China’s auto market will evolve in the future. Prompted by a slowdown of new car sales over the last couple of months, many observers wonder whether China will develop towards small sized cars now. The answer to this question is a determined no.

In the near future, substantial sales volumes will still be generated in the medium and premium car segment, and even luxury cars will continue to enjoy sound development. The reason for this is simple: safety, elegance and comfort are the major product benefits Chinese consumers seek when purchasing a car, while gaining self-confidence and demonstrating success are the main purchase motivations. All these motivations require larger rather than smaller cars, and combined with quickly rising household incomes plus the Chinese preference for Da Qi (grandeur), it becomes evident as to why car sales move up-market. An increase in cost of ownership through higher fuel prices or taxes may have some short term influences, but are unlikely to restructure the Chinese car market over the long term.

Yet, we have recently observed intensified efforts from foreign Joint Venture manufacturers to enter the small car segment. At this point, virtually all mainstream car makers from the US, Europe and Japan have already launched or are about to bring an entry-level model into the China market, and thanks to intense competition Chinese consumers are able to find more and more attractive market offers below the 100K RMB purchase price mark. Car makers don’t bank too much on “down-graders”, though, i.e. consumers who choose a small car to save costs. They prefer to target the young and little affluent consumer group with modern taste and trendy style (this is why the majority of these cars are conceived with hatchback designs). In this sense, small vehicles play a vital role for establishing the brand-/consumer relationship at a very early stage within the consumer lifecycle, and setting the basis for future upgrading.

In fact, the growing popularity of small cars by itself can be seen as an upward market trend. Consumers at the low end of the market, in the process of becoming more mature, have shifted away from their demand for cheap cars – a traditional domain of Chinese auto makers – to vehicles that offer more value for money.

Where does all this leave the Chinese auto makers? In a pretty critical position! They continue to lose ground in their own (small car) stronghold and are not yet able to challenge foreign JV car makers in offering appealing mid-sized or even premium automobiles. Are Chinese car manufacturers going to be on the fringes?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

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Green Is In!

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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Typical Chinese?

Typical Chinese?

After its early spring gathering at the Geneva Motorshow in March the auto industry had another major meeting in Beijing, just one and a half months later. What a contrast to the setting in Switzerland, though!

The Chinese car makers have succeeded in giving an impressive demonstration of their capabilities, as never seen before. Several “green” concepts let us think that the vehicle manufacturers from the mainland have made a step forward in technological development. A closer look at their vehicles shows that they have achieved improvements regarding the quality of workmanship. What’s more, a wealth of new models proves that the Chinese car manufacturers have learned to design really attractive cars – at least in the eyes of the Western (taste influenced) beholder.

While the Chinese independent vehicle makers clearly are trying to raise their credibility on the international scene, the foreign Joint Venture manufacturers seem to focus increasingly on the Chinese market: A new brand was launched and several new medium sized models were presented, which were specifically designed for the Chinese market. This underlines the importance of China and supports the idea that the mainland is more and more considered a market with specific characteristics, which may eventually result in a fourth major distinctive automotive pole, besides the US, Europe and Japan.

Then, what are the particular aspects to be taken into consideration to attract Chinese consumers? Looking at the newly launched models that are specifically conceived for consumers on the mainland, the foreign JV manufacturers still bank on sedan-styled vehicles. They apply the principle of “Zhong Yong” – the traditional value of balance without extremes – resulting in a moderate and not necessarily very fashionable design. These cars are supposed to target rather conservative consumers (still a majority of car buyers in China today), but will most probably not succeed in attracting the new emerging group of consumers – young, and looking for modern, trendy designs.

Regarding the vehicle interior – an important area of consideration for Chinese car buyers – the JV developed new cars appear to respond well to consumer needs: equipment is preferred to be functional and simple, while the entire interior is supposed to offer space and reflect a sense of “DaQi” (grandeur).

The China-designed cars are comparably cheap. It is true that low priced cars from renowned JV brands offer an attractive value for money and will surely meet a considerable potential in the market. “Value for money” is currently the perceived strength of Chinese car makers, and offering aggressively priced vehicles with a supposedly higher quality is a plausible strategy of JV brands to counter the market positioning of independent domestic car brands.

So what does specifically designed for China mean? At present it seems to be the “package” of moderate exterior and uncomplicated interior wrapped into an attractive price. But will this be the success formula for JV manufacturers to seek more independence from their foreign partners, and take a stand against Chinese domestic brands in the long term?

Klaus Paur

Klaus.Paur@tns-global.com

www.tnsglobal.com

Ciao Amore

The recent walk through the Geneva Motorshow, the pinnacle spring meeting of the auto industry in Europe, was quite revealing about the Chinese car market.

After a few hours “inspecting” the latest propositions of the world’s vehicle manufacturers I was more convinced than ever that China has indeed become a modern auto market, at least with regards to the products on offer. On the various stands you have seen cars which are already strongly present on China’s streets, with most of them even being manufactured in the mainland. It is certainly no longer old and outdated models that dominate street scenes in Beijing, Shanghai or Guangzhou!

Geneva was also revealing about the state of Chinese car manufacturers: They are not yet running with the big dogs of the global industry. Only two Chinese domestic brands, BYD and Brilliance, showed their vehicles in a decent way. The absence of the number one Chinese car brand in terms of 2007 vehicle sales, Chery, made it clear that the time has not yet really come to target mature car markets (although Brilliance has announced to re-launch car sales in Europe this summer). Indeed, the challenge is on the home market, which is primarily where Chinese domestic car makers have to seek sustainable success, with products and brands that meet the needs of quickly maturing and ever more demanding consumers.

This year in Geneva, an oversize model of the revived Cinquecento made the Fiat stall very special. As much as it motivated visitors to take a closer look at the new Fiat 500, as well as the other new Fiat models, it reminded me that with the beginning of this year (Nanjing) Fiat has practically ceded to sell cars in China. What a pity! Fiat was one of the first players in the market, and should have had a competitive advantage vis-à-vis the newcomers due to longstanding experience. Yet, like other “early birds” such as Volkswagen and Citroen, Fiat seems to have struggled with the rapid transformation of the Chinese market. While Volkswagen has accomplished a phenomenal turn-around, and Citroen is about to regain speed, the brand from Italy has, however, not succeeded in seducing consumers and failed to bring new attractive models into the Chinese market.

After the merger of Shanghai- and Nanjing Automobile Groups, it appears to be a wise decision for Fiat Auto to leave Nanjing and head for Wuhu, the home of the Chery Automobile Corporation. The plan to form a new Joint Venture could result in offering Fiat- but also Alfa Romeo branded cars as early as in 2009.

However, the time lost to build a good reputation among Chinese consumers may weigh heavily on the future task of marketing strategists, and the pressure to succeed will be high. There is no room for a second failure! But how much will the quasi-departure in 2008 impact Fiat’s new brand building in China? And how long will it take until we see big stands full of confidence at the Beijing and Shanghai auto shows, which motivate visitors to take a closer look at the new Fiat models in China?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

Cheap car for China?

The New Year has brought us the much anticipated low cost car (christened the Nano) from the Indian car manufacturer Tata Motors. Tata Group chairman Ratan Tata expressed his noble intentions "to bring the joy, pride and utility of owning a car to many families who need mobility". While Nano will be launched as a first step only in India, Tata has announced its plans to sell the vehicle in other markets around the globe.

The question that immediately pops into mind is: Would the Nano succeed in China? A superficial view to China’s auto market may prompt a "yes, why not?" China is still a developing car market, and there are also many families in the mainland who need mobility and would be proud to own a car.

Tata insists very much on the fact that the new Nano satisfies technical requirements such as emission and vehicle safety standards requested by international markets. Selling cars is not only about meeting government regulations, though. It is above all about understanding consumer needs.

On the mainland, beside the universal need for basic transportation, we identify highly relevant emotive drivers for car purchase, such as showing success, gaining self-confidence and caring for family. Chinese consumers do pay attention to the niceties of vehicle performance, safety aspects and interior design. How can a car in its basic version – the one which causes the sensation as cheapest car in the world – then attract Chinese car buyers by proposing a 33hp engine and renouncing airbags? And how can it withstand severe competition by proposing only rudimentary equipments, without radio, power steering or air conditioning?

Tata says that the Nano will be better equipped for the international markets, with the price tripling or even quadrupling. If this is the case, the Nano will become nothing more than a "regular" competitor in the market, competing particularly with numerous Chinese domestic brands which altogether hold a dominant position in the micro car segment.

It seems that the idea of vehicle downsizing is not really fitting for China, where the car market is moving upwards and owning a car is also an indication of the owner himself moving upwards. To find a foothold in the Chinese market, Tata would need to explore how to make the product attractive by adding value to the vehicle – functional or emotional – while still keeping the cost low. Evidence of success in doing this does exist in other parts of the world. Who thought three years ago that the Dacia Logan, conceived by Renault as low cost vehicle particularly for Eastern Europe, would eventually succeed in the highly developed, Western European markets?

For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com

Emerging, mature, or somewhere in between?

Two or three years ago it was still quite easy to agree upon the state of the Chinese passenger car market: an emerging market with enormous growth potential. Today, most people would still agree to the existence of the enormous growth potential, but is the Chinese car market still emerging?

Several market characteristics would lead us to think so. The considerable market growth experienced in China is primarily driven by car sales to people who have previously never owned a car. These customers, purchasing a passenger vehicle for the very first time in their life, represent 70% among all new car owners in the country. Almost by consequence, the level of consumer experience with cars is comparably low. More than 60% of new car buyers rely heavily on advice from friends or family members, and base their decision making importantly on recommendations.

Another indication that China is still an emerging market lies in the fact that at present more than 90% of all car buyers are paying for their newly purchased vehicles by cash. Despite the offering of finance packages by some vehicle manufacturers, car financing has not yet become widely accepted. 

The development of China’s new car market is driven by young, successful professionals who have achieved a solid financial situation with good spending power for consumable goods. This young generation, often returning from several years of education abroad, is increasingly adopting a more Western lifestyle, where flamboyance and personal pleasure are more generally accepted concepts in comparison to the traditional Chinese values, focused on modesty and discretion for example.

This is why in China as in the more developed markets, a car not only serves as a means of transportation but also allows its owner to portray an image, which becomes a means of pleasure. As we can observe in the recent Brand Health and Needs Segmentation Study conducted by TNS Automotive, young Chinese car owners in particular represent a joyful and freedom-oriented consumer group, attracted by modern and trendy vehicles. The development of this profile in turn has created a fun and adventure-oriented clientele which has substantially increased over recent years. This fact alone has established a compelling basis for the introduction of a diverse range of new car models, whereby hatchback styled vehicles and SUV offerings enhance their presence vis-à-vis the historically predominant sedan cars.

As this year comes to an end, it is clear that the new passenger vehicle sales figures will exceed the much expected 5 million mark and 2007 will be another record year for the Chinese auto industry. Present and future market opportunities have attracted virtually all car manufacturers to this market, and made China the most crowded market place with far more than 50 brands and almost countless models on offer.

With rapidly developing consumer needs and behaviours, can the most competitive auto market in the world still be considered emerging? I don’t believe so. But is it already a mature market? Not yet! Certainly fast developing… How would you describe the state of today’s Chinese car market? When will it actually reach mature market stage? How will the mature car market in China differ from the current developed markets around the world?

Download consumer_trends_in_china_2007.ppt

Download chinese_world_view_07.ppt

Too early to evaluate Chinese car brands?

As a passionate automotive researcher born and bred in Europe, China is quite simply paradise for me. However, even as an expert on the subject, I realize it can be sometimes difficult to grasp the true nature and state of China’s development. The rapid growth of the most important industry in the Middle Kingdom is both a complex and exciting subject – one I look forward to developing and exchanging opinions via this dedicated blog.

When I came to China 4 years ago, one of my most amazing discoveries was the existence of a huge number of Chinese auto manufacturers – widely unknown outside of the country. At this time, some of them had already begun to produce passenger cars in Joint Venture cooperation with foreign partners, while only a few had begun pursuing their own route in car manufacturing and establishing their own brands.

Since then, Chinese originated car brands have made astonishing progress - the rising market share of China’s passenger car market leaves no doubt as to the credibility of this statement. However, a closer look at the situation on the ground reveals that Chinese branded car buyers tend to look for affordable products and low prices above all during the purchase process. Brand is simply not the determining factor. But, does this mean the car brand is not a matter of importance for Chinese car buyers?

With an increasingly demanding clientele in this rapidly maturing domestic economy, brand certainly is important! In a competitive environment with functional aspects becoming more and more interchangeable, consumers in the Chinese market still focus on functional features, but little by little are shifting towards more emotional needs. This is where the brand truly gains importance – whatever the origin of the product! Today in China, car ownership itself is a status symbol, an expression of economic success – even if one drives a small Chinese branded car. But this scenario is due to change.

For those Chinese car manufacturers with export ambitions towards developed markets, the “brand” is the entry ticket. Interestingly enough, consumers abroad perceive Chinese brands more favorably than Chinese consumers themselves! A recent TNS survey revealed that US consumers attribute Chinese car brands a competitive edge in value for money and fuel economy while car owners “at home” only see the price advantage and appear much more critical regarding the technological capabilities. However, there is common agreement that basic consumer requirements, such as safety and workmanship cannot yet match the standard of foreign car makers.

It is never too early to explore the value of brands, but with these obvious product quality deficits, do you think domestic car makers should be given more time to improve their manufacturing capabilities? In this sense, Chery’s move to produce Chrylser-badged vehicles appears to be a smart one, in terms of gaining experience and reducing their own marketing risks. Don’t you think?