How easy to sell cars in China?

Current market growth figures of 20% in the passenger vehicle market suggest that it is rather easy to sell cars in China compared to elsewhere in the world. ‘There is too much government intervention’ I have heard people saying earlier this year pointing to the incentive schemes introduced in the mainland. Well, there is quite a bit of government aid in the US and Europe, too, and now, we can already hear voices suggesting that ‘Abwrackpraemie’ (scrapping incentive) and the ‘cash for clunkers’ program are helping to reverse the downward trend in the German- and US auto market. And, due to its rapid development and faster than expected rise to the number 1 market place in the world, we observe a tendency to comparing China with the other major regions in the world regarding sales volume development and car market structures.

Comparisons of this kind always remain on a very general and superficial level, but do not really contribute to an understanding about the driving forces within the markets. To tackle this, we have to dig deeper to understand the economic and socio-cultural environment, the role that the automobile plays within this context, and how seemingly similar measures – e.g. government incentives – affect consumer behaviours.

No matter how hard the economic downturn has hit people on an individual level, its psychological impact has undermined consumer confidence. Its effect, though, appears to be much more enduring in the advanced markets than in the developing economies. In a nutshell, this indicates that people in countries enjoying a high standard of living – such as in the US and Germany for example – are much concerned about their potential (and real) losses during the period of depression, while consumers in emerging markets (such as China) more easily can overcome their fears through hopes and expectations for future gains and a better life. As a consequence, government incentives in China have acted as a “kickstart” to revive slumping sales, and helped to bring back consumer confidence. This suggests that the Chinese car market is able to develop without future government support, and is bound for a sustainable growth (in a market place with low car penetration). Government support in the US and Germany did not really boost consumer confidence, but have brought forward vehicle replacements. The longer-term development of the saturated mature markets remains a big question mark. In this respect we can agree that it is much easier to sell cars in China than in Germany or the US.

For those who primarily see the sales volumes in China, there is an additional aspect to take into consideration, though. The assessment of market potential on volumes alone neglects the social-based expectations towards the car, and with it, the behaviour patterns to choose the appropriate vehicle. And here the things start to get tricky. We may say that in a mature market, where more than 80% of the households own at least one car, vehicle ownership is a fairly common phenomenon. This is why the value of social recognition through the ownership of a passenger vehicle is relatively low, compared with a market like China, where driving one’s own car is in the majority of cases a demonstration of individual success. In the mainland, the emotional benefit from car ownership is much defined by the acceptance from the social environment (family, friends, colleagues), and the size of car owned determines the degree of recognition. In other words, the possession of the “right” car leads to social respect, and this triggers self-gratification.

Which is the “right” vehicle? This depends on the intended purpose – purely for personal, family and/or business usage, and is above all defined by the values of the potential buyers and their reference groups. And consumer- and reference groups can be quite different. As an example, the concept of DaQi and Zhong Yong may more or less apply depending on the age, and the idea of harmony may be differently interpreted according to the development level of local markets. To conceive the “right” cars for the diverse Chinese market is therefore the real challenge for automakers.

Despite the favourable context in China’s car market we have seen vehicle manufacturers struggling to sell their intended volume of cars, and I am pretty sure that we will see car brands failing to accomplish their sales targets in the future. Maybe this is because it is not easy at all to sell cars in China.

Chinese version

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.