Beijing mired in heavy smog has been a common, and worsening, sight this year.
But that pollution, traffic gridlock, and increasing fees associated with owning a vehicle shouldn’t dampen the continuing rise of the Chinese auto industry, experts say.
China’s auto market confounded projections of a 2013 slowdown, growing at a double-digit pace so far this year and is seen continuing to climb upward in 2014.
“People really want to own a vehicle in China (and) don’t want to be told they can’t buy (one),”’ Senior Economist Yingzi Su says at a recent University of Michigan Transportation Research Institute conference on China.
“We can’t live without cars. This is a fact,” Wang Xia, chairman-Automotive Industry Committee of the China Council for the Promotion of International Trade, says at October’s Global Automotive Forum in Wuhan, China.
WardsAuto/AutomotiveCompass estimates China new-vehicle sales will reach 22.1 million this year, up from 19.3 million in 2012. Volume is forecast to rise to 24.1 million in 2014.
Total vehicle sales through October, including buses and medium- and heavy-duty trucks, increased 13.5% from like-2012 to 17.8 million units. Furthermore, deliveries spiked 20.3% in October to 1.93 million units, the best growth rate since January.
“The (speed of development) of the China auto industry has been underestimated repeatedly over the last 20 years,” Frank Zhao, director-Research Institute for Automotive Industry and Technology Strategy at Beijing’s Tsinghua University, tells the UMTRI conference attendees via Skype.
The reasons for continued optimism about China’s auto industry, the largest in the world by volume since 2009, are varied. Key to the bright outlook is the still very low rate of auto ownership in the Asian country.
There were just 81 cars per 1,000 people in China in 2012, GM’s Su says. Not only is that well below the U.S., where the auto-ownership rate remains the highest in the world at 813 cars per 1,000 people, but it also lags other developing markets.
There were 308 cars per 1,000 people in Russia in 2012, and 187 cars per 1,000 people in Brazil, despite both of those countries selling a much lower volume of new vehicles annually.
Not surprisingly, the Chinese regions where vehicles can comfortably fit are those with the most potential for growth, such as the interior provinces of Qinghai, Xinjiang and Inner Mongolia.
“If you live in Beijing you wouldn’t want any more growth in the auto industry,” says Wayne Xing, director-China Automotive Review and a part-time resident of the city.
Those who live in Beijing more and more are opting for public transportation or walking as a means of getting to and from work, dodging the traffic hassles, Xing says.
However, Su notes the Chinese want to travel on weekends and holidays so even those in the most congested municipalities will continue to purchase new vehicles.
The rate of ownership in China remains highest on the coasts, but the growth potential in auto sales is greatest in the interior third-, fourth- and fifth-tier cities, where residents increasingly are staying put due to the rising cost of real estate in bigger cities such as Beijing and Shanghai.
The continuing restriction on license plates in major Chinese cities was seen as curtailing sales this year.
Instead, the threat of expanded restrictions has buyers scrambling to purchase vehicles, with plates going to the highest bidders.
The plate-lottery system is in place in Beijing, Shanghai, Guiyang and Guangzhou but may expand to eight more cities, including auto-manufacturing hubs Chongqing, Chengdu, Hangzhou and Wuhan.
Further, the Beijing government in early November announced it will reduce the number of plates awarded from 240,000 this year to 150,000 in 2017. Beijing also has a goal to limit the number of vehicles in the city to 6 million by late 2017. There were 5.4 million cars and trucks in Beijing in late October, reports China’s Xinhua news agency.
“People started to buy vehicles because they have a fear that once that lottery system comes in” they won’t be able to buy a car,” Xing says of the higher-than-expected increase in 2013 sales.
In a rare moment of candor at the GAF in Wuhan, Xu Sitao, chief representative for the Economist Group in China, advocates lifting the barriers on vehicle ownership.
“I think it’s ridiculous we have restrictions on the purchase of cars,” Xu says. “The biggest victim will be the domestic car manufacturers.”
Indeed, the domestic OEMs, whose strength still is affordable, entry-level models, have seen their market share drop in cities where the plate lotteries are in effect, Bloomberg Businessweek magazine reported earlier this year.
GM’s Su says buyers want to purchase a vehicle that befits the outlay of cash now required to obtain a license plate, making more expensive foreign brands more popular.
“When you ask people to buy less and they need to pay more to buy, they definitely want to go to the highest level they can afford,” she says. “Because you don’t want to spend $14,000 on a license plate just to buy a $10,000 vehicle.”
This phenomenon, coupled with the fact the wealthy often are the only people able to absorb the cost of a $14,000 license plate on top of the purchase of a vehicle, has led to increased sales of more-expensive, and oftentimes less fuel-efficient, models.
SUVs are the fastest-growing segment in China this year, Su notes.
The SUV trend hasn’t been bad for all domestic manufacturers, though.
SUV maker Great Wall saw a sharp increase in sales, with light-truck deliveries up 29.6% through October to 458,963, WardsAuto data shows, the fourth-highest light-truck volume in the period after GM, Chana and.
GM’s 2.59 million total sales, 1.21 million cars and 1.38 million light trucks, places it first in Chinese light-vehicle sales through October, ahead of’s 2.22 million.