China, the manufacturing powerhouse that makes up 20% of the world’s entire population, has seen fierce economic growth for the past ten years. Even the automotive industry, the pride and joy of American manufacturing, has been over taken by China. The following is an examination of the Chinese automotive industry, the changes it is facing, and measures that have been enacted to combat the shrinking domestic auto market.
For the past two years, growth in China’s automobile sales have slowed.
–Nikkei Business Online
Sales of Japanese automobiles have been sluggish in China, Japan’s largest export market
July 2012 auto sales in China compared to July 2011
Toyota: 19.6% decrease
Mazda: 12% decrease
Nissan: 2% decrease
Honda: 1.3% increase
Concerned about the slow growth of the automotive industry, Fuji Heavy Industries is contemplating abandoning domestic production of Subaru in China.
Reasons for Slowdown of Auto Sales
Reason #1: China’s Economic Cool Down
China’s economic cool down has been blamed for sluggish car sales.
This graph shows the growth rate of China’s GDP from 1Q 2011 to 2Q 2012.
Reason #2: Increased Inventory Stockpiles
Actual demand is estimated to be at around 70%, but automotive companies plan to increase production of vehicles, increasing inventory stockpiles.
Reason #3: Decreased Convenience of Owning a Car
China’s metropolitan areas have seen rapid growth over the past 10 years. With this expansion, the number of car owners and new drivers has increased, intensifying the occurrence of traffic jams and accidents. For ten years in a row, China has had more traffic accident related deaths than any other country. With over 60,000 automobile-related fatalities in one year and unbelievably congested roads, car ownership has become less convenient and less popular among Chinese consumers.
China’s plan to combat the congested highways has caused more problems:
Plan: Restrict the issuance of license plates
Purpose: Ease the traffic congestion caused by the rapid increase of personal car ownership.
Effect: As the number of issued license plates decreased, sales of new cars also decreased.
Problem: License plates have become more expensive than the cars they are attached to.
Owing to the restricted production of license plates, a bidding war has begun, causing the price of license plates to skyrocket, especially in Beijing, Shanghai, and Guangzhou.
The lowest bid accepted for the sale of a license plate in Beijing came to 750,000 yen (US $ 9,614). The least expensive brand new Nissan you can buy in China is a little over 850,000 yen (US $10,896).
<Impact of the regulations>
-Sales of new and used cars have been restricted
-Because of the high price of purchasing a license plate, it has become harder for middle and low-income citizens to own vehicles.
–The Asahi Shimbun Digital
To avoid the restriction of automobile ownership in the future, new car prices have been decreased in inland and low-income areas.
Change in Middle Class Consumer Tastes
Increased popularity of SUVs
Ownership of expensive off-road vehicles has gained popularity among young drivers as a status symbol.
Demand has increased for not only luxury vehicles, but also sporty and customizable cars.
–Welcome to BASF Japan
Workers who live in suburban areas and commute using their own cars have started to think that it’s more convenient to live in the city where public transportation is abundant.
Consumers have started to prefer inexpensive compact cars with modest designs and interiors.
–Nikkei business online
When choosing a car, many consumers are looking for good fuel economy.
The generation of consumers who thought a man was unfit for marriage unless he owned a house and a car has passed, giving way to a more realistic and conservative consumer culture.
Source: Naver Matome