Carmakers turn to smaller cities for sales recovery

MARKETS in smaller cities in China have became the top priority for domestic car makers as they battle against declining sales and weak market demand.

Chinese car makers, including Brilliance China and Tianjin FAW Xiali Automobile Co, have been extending their distribution networks to second and third-tier cities after sales growth in cosmopolitan hubs such as Shanghai and Beijing slowed.

Tianjin FAW, the manufacturer of the Chinese-branded Vizi subcompact, plans to increase dealerships in counties and rural areas by a factor of eight, giving the firm 800 dealers by 2010, according to Dang Ren, the assistant to its general manager.

The move aims to help its aggressive sales target of 400,000 units during the same period.

Another domestic player, Brilliance Jinbei Automotive Co, wants to double the number of dealers in second-tier cities to 400 by 2010, a company official said.

Major Chinese car makers including Chery Automobile Co, Geely Automotive Holdings and Great Wall Motor Corp all reported a sales drop and profit falls this year, as the slump in stock markets and the global financial downturn drove consumers away from auto purchases.

"Chinese brands are impacted the most under the global financial crisis because the buyers of domestic brands are cost-sensitive consumers," said Yale Zhang, analyst from CSM Asia Corp. "Domestic brands will have a difficult time in 2009."

Chinese auto makers also found it hard to compete with joint ventures as more small, low-priced vehicles carry°?ing foreign brands were launched in the Chinese market.

The market share of Chinese-°?branded vehicles had dropped to 26 percent by the end of September, down from 30 percent at the beginning of the year, according to the China Association of Automobile Manufacturers.

In September, China's passenger car sales dropped 1.44 percent from a year earlier to 552,800 units. It was the second month in a row that experienced a year-on-year sales decline.