A blessing in disguise?

When China rose to the number one auto market in the world a couple of months ago, I have resisted to cheering this ascension to the top. In fact I agree with those who say that there is little to celebrate about this top position which could only be acquired so early because the US market was heavily hit by the economic downturn. However, I do admit that I rejoice about the auto market performance in China more and more by the day as vehicle sales continue to increase.

My excitement is considerably fueled by an apparent increasing consumer confidence in the mainland to purchase passenger vehicles. Our TNS survey among car purchase intenders has identified a growing share of consumers who plan to move forward with previously postponed purchase decisions, and this can be seen as an indication that the auto market in China is set to continue its recovery. It assures me that we will see rising vehicle sales in the future!

The growing consumer optimism goes along with increasing budget consciousness, though, as car buyers also look at scaling down their purchase budgets. Does this mean that consumers intend to purchase smaller cars? Not necessarily, as size still matters! The vast majority of car buyers does not want to compromise on vehicle size and won't make concessions on equipment levels. Nevertheless, consumers are most likely ready to trade-off for a lower car engine displacement, and this is where the reduction of the purchase tax fits in. Every three in four purchase intenders are influenced by the government's new purchase tax policy in deciding on the engine size.

More budget cautious consumers certainly pose a challenge to car makers, but they do not automatically mean bad news for the industry. Think about the opportunities arising from an increased demand for lower displacement engines. Chinese car buyers won't just be satisfied with lower engine performances but request compensation through optimized technology. To match low displacement performance levels with the ones of stronger engines, we may expect a further development of the Turbo technology, and its trading-down to the 1.6 liter and 1.4 liter engine categories. Then, more sophisticated engine technology may put more demands on fuel quality, and we may hope for an accelerated country-wide coverage of higher grade fuel, which, in turn, enables a quicker introduction of highest emission standards. In its best scenario, the change of consumer behaviour brought by the economic downturn has an accelerating effect on infrastructure and technological developments, with a positive impact on the environment at the same time.

In this context, the changing consumer behaviours also present real opportunities for Chinese domestic manufacturers, as they should also be encouraged to put further efforts on improving engine technology. This will directly benefit them in building their image as reliable car makers. As it turns out, the economic downturn also helps Chinese vehicle manufacturers in overall terms to become more interesting to consumers in the mainland. Improvements in conventional engine technology and continued R&D activities towards alternative energies as well as sustained brand-building will then indeed enable them to close the gap to their international competitors.

There is no question that the economic slowdown has brought along painful cuts to many of us. Luckily enough, China's auto market was less heavily impacted by the global turmoil than the rest of the world, and we can see signs that vehicle sales are back on track. If car makers and the Chinese car industry seize the chances that lie ahead, in the long term the slowdown could turn out as a blessing in disguise.

About the authour: Klaus Paur, Gasgoo's  columnist, is Regional Director Automotive for North Asia at TNS China who has over 20 years of experience in marketing and market research, 13 of which have been spent specialising in the automotive industry.