China’s car market shifts up another gear

Oman Daily Observer - The car industry is expected to shift its focus from the downturn in Europe to the robust growth in its largest market — China — as the Shanghai autoshow opened yesterday.

The market's future lies more in the broad expanses of China, industry analyst Marcus Berret of the Roland Berger consulting company said.

"Second and third-tier cities will likely see strong growth," he said.

That's where car manufacturers are heading in order to set up factories and above all, dealership networks.

One example is Volkswagen. Europe's largest car maker wants over the medium term to boost the number of dealerships to 3,000, from the current 2,000.

Within five years, VW wants to be manufacturing 4 million vehicles per year, or 75 per cent more than now. Seven of its 10 new car factories worldwide are slated for China.

A second round of growth is in store for the Asian giant.

Industry experts say there is no end in sight to the record-setting pace.

"As long as the economy does not start to falter, sales will grow further," said Huaibin Lin, market analyst at Shanghai-based IHS Automotive.

While worries spread about China's economy, the automobile association CAAM is nonetheless expecting sales of 16.8 million cars.

That would be a growth rate of 8.5 per cent, slightly ahead of last year's rise, deputy general secretary Shi Jianhua said.

The better than expected start to 2013 created an optimal mood ahead of the Shanghai car show, which now easily holds its own against shows in Europe and the United States.

About 2,000 car makers and components suppliers will be unveiling 111 world premieres at the event.

Car makers such as Germany's VW, Audi and BMW are the dominant force in the growth and it appears their Chinese counterparts take a while to assert themselves.

Chinese firms like Chery have gained a market share of just 3.2 per cent, and last year saw sales slump by 4 per cent. Chinese car makers are chiefly active in the lower market segment, where prices are low, competition is tough and profit margins narrow.

All the same, there's no business to be done without Chinese manufacturers. The world's car makers may only produce in China and sell cars to the public under a joint venture with local producers.

In such close co-operation, China wants to profit from the know-how of market leaders.

The country's plans to build an own strong car industry have been slow in coming, but domestic car makers are supported by the state and regional governments.

"They have some real money stored in their war chests and if necessary, could purchase the necessary technologies," said Christian Hummel, an expert on China for the Capgemini consulting company.

The government is also pushing foreign car makers to develop jointly with their Chinese partners cars for the local market.

A week ago, BMW and local partner Brilliance unveiled the electric-powered Zinoro, which is to be introduced to the market in early 2014.