Cheap vehicles crowd out the big automakers in the home market
After years of losing out to foreign brands, China’s carmakers are winning in the world’s hottest SUV market by employing a tried-and-tested strategy: offering them cheap.
By flooding the market with comparable models at lower prices, Chinese carmakers accounted for eight of the 10 bestselling sport utility vehicles in the first quarter, crowding out global nameplates like Toyota’s RAV4 and Honda’s CR-V.
Chinese-branded SUV sales more than doubled in the first quarter to overtake foreign nameplates in the segment this year, accounting for 56 per cent of all deliveries, according to data from the China Association of Automobile Manufacturers.
At the Shanghai vehicle show this week, Honda will unveil a full-sized SUV concept that will compete for attention with local offerings such as BYD’s new Song and Yuan SUVs.
“A significant number of Chinese consumers are looking for a more affordable alternative to premium-priced foreign SUVs,” said Bill Russo, a Shanghai-based managing director at consultant Gao Feng Advisory.
“Foreign automakers now need to price more aggressively as the market matures and becomes more hyper-competitive.”
Almost half of the new and refreshed passenger vehicles slated for debut this year in China are SUVs, with about three-quarters of them from local carmakers, according to estimates by Bloomberg Intelligence.
Global vehicle manufacturers are competing against names little known outside China: Anhui Jianghuai Automobile’s Ruifeng S3, BAIC Motor’s Huansu and Chongqing Changan Automobile’s CS35 all rank in the top 10 by sales.
Great Wall Motor’s H6, the most popular SUV in China, costs about half the price of Volkswagen AG’s Tiguan.
The average price of the bestselling Chinese SUVs in the first quarter was was 82,900 yuan ($13,380), versus 167,300 yuan for the foreign makes, according to dealership quotations compiled by Autohome, a car-pricing website.
The addition of new models is being accompanied by a surge in production. Annual output of SUVs in China is estimated to reach more than 7.04 million units in 2018, up from 4.32 million last year, according to researcher IHS Automotive.
The SUV success represents a rare win for China’s carmakers, which have struggled despite heavy government intervention. Foreign companies are required to set up joint ventures with local carmakers to operate in the country, sharing profits and technology.
Utility vehicle sales accounted for 24 per cent of the total passenger-vehicle market in the first quarter. Local carmakers have been fast to catch the shift in consumer preference from traditional sedans to more spacious crossovers, and fill the gap in the market for lower-priced alternatives.
“It’s about time Chinese automakers gained back some territory after losing out to foreign brands for so many years,” said Cao He, a Beijing-based analyst at China Minzu Securities.
“But they have to watch their backs and make sure the growth is sustainable.”