Chinese Consumers Buying Record Number of SUVs

SEMA News—October 2011

Chinese Consumers Buying Record Number of SUVs

Growing Opportunities for Specialty-Equipment Manufacturers

   
All types of SUVs, including Jeeps, are attracting a growing customer base in China. “As the market is maturing, consumers are moving away from all sedan cars,” said Klaus Paur, managing director for greater China automotive research with Synovate Motoresearch. “An SUV body style allows them to reflect a more outgoing and expressive mindset.” Pictured here, SEMA members view customized vehicles at the 2010 CIAPE Show in Beijing.
     

The SUV and luxury segments will be the main drivers of growth in China’s auto market this year as it shrugs off a slow few months and returns to steady growth, analysts said. That’s good news for SEMA members. Buyers of luxury cars and SUVs—many of which are luxury SUVs—have money to spend on customizing their vehicles, and a growing desire to do so.

SEMA members stand to benefit from other trends in China, as well. For example, engines are being downsized, and automakers are adding technology to boost engine power in luxury and less-expensive autos.

Passenger vehicle sales in China, including SUVs, grew by 11% in the first six months of 2011 to 6.3 million units, according to J.D. Power and Associates. Those aren’t the kinds of numbers we’re used to seeing from China. In 2010, passenger vehicle sales grew by 37% to 11.9 million units. But the slowdown was due to specific reasons rather than overall market sentiment, analysts said.

Yale Zhang, president of Shanghai-based Automotive Foresight consultancy, said the slowdown “is an expected result of policy changes and the overall economic situation.” Klaus Paur, managing director for greater China automotive research with Synovate Motoresearch, expected growth to accelerate in the second half of this year. The passenger-vehicle market should grow by about 15% for all of 2011, he said, with SUVs and luxury car sales the main drivers of that growth.

“The drastic slowdown in the first half of the year was partly due to vehicle purchases advanced in 2010 due to government subsidies,” said Paur.

   
   
 

The SUV and luxury segments will be the main drivers of growth in China’s auto market this year as it shrugs off a slow few months and returns to steady growth, analysts said. 

   

The SUV and luxury segments were what kept the market growing at all in the first half of this year. SUV sales rose by 26% in January through June, and luxury-model sales grew by 31%.

Imports—which were all luxury cars and/or SUVs—also bucked the slowdown, rising by 22% in the first five months, the most recent figure available for total imports.

Most of the imported SUVs were luxury models, such as the Cadillac SRX and the BMW X5. But the Subaru Forester, which caters to China’s growing off-road crowd, was the top-selling import.

Though imported luxury SUVs sold well, locally produced SUVs were the top overall sellers in the first half of the year. Top-selling domestically produced local and foreign brands included the number-one-ranked Great Wall Hover SUV, the Volkswagen Tiguan and the Honda CR-V.

The popularity of SUVs hinges on two trends: a growing number of Chinese purchasing second cars, and rising incomes.

Why are SUVs so popular? “As the market is maturing, consumers are moving away from all sedan cars,” said Paur. “An SUV body style allows them to reflect a more outgoing and expressive mindset.”

A More Outgoing Mindset Means More Customization

SUV owners are indeed outgoing, and they like to take their SUVs out of the city and cross-country, judging by the growing popularity of group cross-country SUV treks in China. That bodes well for SEMA members. Before setting out, the SUV owners need to trick out their vehicles with everything from better suspensions to more lighting.

The Jeep Cherokee is a popular model among China’s cross-country trek and off-road crowd. The country is awash in older models, as the Cherokee was produced in China for a few years, ending in 2007. Jeeps are now being imported into China, and Chrysler said that it will boost the number of models being imported over the next few years. The Compass is the most popular; 5,299 units were sold in China the first six month of 2011, up 51% year over year. FIAT, which now owns Chrysler, is also seriously considering producing Jeeps with its Chinese partner Guangzhou Auto at the plant now under construction in eastern China.

SUVs and luxury cars are still a relatively small part of the market. Compact cars were the largest segment in China’s passenger vehicle market at 41.6% of sales in January through June, according to J.D. Power.

The engines on those compact cars are generally 1.6L or smaller, so direct-injection use is also growing, even in less expensive cars. For example, Ricardo Plc. is developing a 1.2L direct-injection engine with Lifan, a Chinese producer of inexpensive cars, to replace 1.5L and 1.8L naturally aspirated engines.

The engines in luxury models in China are also being downsized, boosting demand for turbochargers. Even some imported “super luxury” SUVs (defined by J.D. Power as those with a price tag of more than 1 million RMB or $155,000 USD at current exchange rates) now offer 3.0L engines with turbochargers instead of 4.0L engines. Land Rover and Mercedes-Benz are the main players in that segment in China, J.D. Power said.

China is a hot market for super-luxury brands such as Lamborghini and even small supercar brands, such as Spain’s Tramontana. Tramontana sold 13 supercars in China in 2010, Tania Cremades told Australia’s Brisbane Times in June. Cremades is the head of China business development for Tramontana, and she said that all of the customers were between 25 and 38 years old. “Here, people are young,” she added. “They want to use the car, try the power.”

That kind of growing car culture can only equal more opportunities for SEMA members down the road.

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