The sizzling Chinese car market

Shaun Rein

When markets get got in China, you can be sure they are sizzling. The Knowledge Wharton gives a number of very solid figures and amazing anecdotes:

"There is a razor-thin profit for car dealers," said Ye Chun, marketing manager for Dongfeng Nissan’s Jinjiang store, which is located in one of the most expensive villa districts in west Shanghai. The store sells Nissan's full series, from Teana and Selphy to TIIDA and Livina. "Generally speaking, we don't make money from selling cars. Sometimes we even sell a car at a lower-than-cost price for the purpose of achieving a total volume target by year end. What’s making the situation worse is there are heated competitions between different dealers for the same brand. Our profit mainly comes from the after-sales service and auto parts network."

One of the key questions: how to avoid the traditional price wars in China, now the margins are getting thinner and thinner. Our Chinabiz Speaker Shaun Rein hits out again to car producers like GM, who have branded down their top-end cars to satisfy the not-so wealthy Chinese middle-class:

"Basically, the auto market is huge in China as China's emerging 250 million strong middle class aspire to own cars. This has made economical-class cars a good market. Unfortunately, many foreign brands like General Motor's Buick line have diluted their brand image by lowering the price and standards of their cars to target the middle class. This has left both low and high-end consumers confused as to what the Buick brand stands for. Company CEOs do not want to drive the same brand car as their secretaries. Even if a Lacrosse and Excel are different cars, they have the same label. The price cutting has eroded margins and hit Buick and Volkswagen. Buick is following the same mistakes it made in the U.S. where it is doing badly."

Toyota seems to be doing better, according to observers. "Companies like Toyota have segmented their markets well," said Rein. "They know who they are as a brand and who they should sell to. For middle-upper middle cars, Toyota sells the Vios or the Camry up to the Crown. For luxury consumers, they sell the Lexus brand, which they differentiate from their Toyota brand."