John Zeng
Senior Market Analyst
China Representative
Global Automotive Group
Global Insight
Gasgoo.com: Mr. Zeng, could your share with us your views on China's auto market in 2007?
John Zeng: In 2007, China's auto market continued to grow about 20% after a rapid growth in 2006. With a growth rate like this, China will be able to catch up with the United States or replace it as the world's biggest auto producer in a few years.
There are two prominent phenomena in China's passenger vehicle market last year: The first thing is the rise of Japanese auto makers, especially Toyota, and the second thing is that China's local auto makers are losing market shares. Even before coming to China market, Toyota had established its auto parts supplying system in south China regions. Once Toyota decided to produce cars in China, it could quickly find suitable suppliers.
Many people might also be stunned to learn an over 20% growth in China's commercial vehicle market and over 60% in heavy duty commercial vehicle market. Many buyers rushed to buy these commercial vehicles because they know that a mandatory State III emission standards (similar to EU-III standards) which Chinese government vows to put in place in 2008, would drive up commercial vehicle prices. In addition to that, the construction of stadiums for 2008 Olympic Games has also stimulated market demands for commercial vehicles, especially heavy duty trucks. The first month of this year continues to see a rapid growth in the commercial vehicle market, but it is unlikely to see a similar growth rate as last year, because a large number of commercial vehicles have been purchased prior to 2008 and secondly, market demand for commercial vehicles will come down after the completion of the Olympic constructions.
Gasgoo.com: In the Chinese passenger vehicle market last year, China's local automakers are losing market shares; part of the reason is that local players are trying to enter higher market segment, whereas joint venture automakers are expanding to lower segment.
John Zeng: You are right. A good example is that the price of Livina produced by Dongfeng Nissan has been reduced to only RMB 70,000-80,000. As for local auto makers like Chery and Geely, there is no room left for more price cuts. Without this price advantage, they have no strength to compete with the foreign brands. Though Chery has achieved a spectacular growth in overseas market last year, its sales record in domestic market is much less impressive, a moderate growth of 5% from one year earlier. As you know, Chery's enormous successful in overseas markets has much to do with China's export tax rebate policy. If there were no such policy for Chery last year, could you imagine its enormous success abroad? It is simply unimaginable.
Gasgoo.com: It's much easier for the foreign automakers to expand to lower segment market than for China's local automakers to enter higher segment. Is that right?
John Zeng: Foreign automakers also face many challenges. Like their local counterparts, foreign automakers have many considerations before launching a new model in Chinese market. Can this model become profitable in the market? Would the model promote or damage its product image? I bet they would not like lower their standards in order to better compete in the lower segment market.
Gasgoo.com: Some joint venture automakers seem to have been determined to explore the lower segment. For example, Shanghai GM has lowered the price of Lova to less than RMB 60,000. And BMW is also planning to bring its 1 Series to the China market and finally to realize its production here. That clearly indicates their determination to enter the lower level segment in China. China is fast growing market. The foreign automakers are more interested in grabbing market shares than making profits. Do you agree with me?
John Zeng: General Motors is very much good at multi-brand operations, and its Chevrolet is positioned at the middle and lower level market, so it's not surprising to see Lova price down. The foreign brand companies will not be interested in A segment vehicle market until they find a growing market demand in the tier 2 and tier 3 cities driven by the soaring oil price. And if the fuel tax is put in place in 2008, A segment vehicles would become the best choice for the second and third tier city buyers. But it is not easy for foreign brands to squeeze in the market where China's local players like Chery, Geely, Haima, Changcheng and BYD have already held a big market share. Last year some A segment vehicles like Chery QQ experienced a negative growth due to the lack of new models.