Chinese honeymoon with luxury cars

Zhou Wei is a busy man. As sales manager for Beijing Bentley Motors, over the last year he has been trying to develop the Bentley brand in China. “Not many people know Bentley; it is not a household name here.”

 

Through selective advertising and word of mouth, a small but steady stream of prospective buyers has come through their centrally located showroom. “We sold around 30 vehicles last year, better than we expected.”

 

With prices starting at RMB 3,680,000 ($460,000) in a city where average wages are under $200 a month, the Bentley is a symbol par excellence of achievement among China’s affluent elite.

 

Fanfare

 

Bentley’s 2002 arrival in Beijing shows how far China has come from the days of the late 1980’s when bicycles were the modus operandi for all bar top Party officials.

 

This year it was announced with great fanfare that, for the first time, China would overtake France in car production figures.

 

Annual estimates of over four million units will place China fourth in the world rankings of largest motor manufacturers. Moreover, according to General Motors (GM) representative Scott Reno, China can expect to rival the United States’ 16 million units by 2025.

 

“Being able to get a car has changed my life. As an entrepreneur it has great value from a business perspective as I can travel quickly around the city” Gao Li, Beijing resident

Although a fair number are destined for export, many cars will be sold domestically. Last year China sold a reported three million cars, a 30% increase over 2001. 
 

Individual purchases now account for 60% of units sold and there are estimates of more than 10 million cars with private buyers.

Higher wages and lower prices have made cars more affordable to China’s consumer-hungry middle class.

 

Consumer confidence

 

Qiao Na, an advertising executive for a foreign agency recently bought her first car, a RMB 100,000 ($12,500) Toyota. “I wanted a car for its convenience. For most people, a car is a desired item, second to an apartment,” she said.

 

Since the early 1990’s, China’s auto industry has witnessed year on year growth averaging over 20%. Many foreign companies have set up joint ventures aimed at combining a cheap labour force with Western manufacturing and distribution know how.

 

After a false start that incorporated both spendthrift behaviour and wild projections, reputed Western companies that have stuck it out look as if they are about to reap the rewards.

 

Citing experts, the People’s Daily recently pointed out that when the ratio of car prices to GDP per capita reach two or three, as is the case in the more developed cities, family members who then combine incomes would be able to afford their first car.

 

Volkswagen is all set to tempt Chinese customers

Gao Li bought his first car through the aid of his parents. “Being able to get a car has changed my life. As an entrepreneur, it has great value from a business perspective as I can travel quickly around the city. From a social angle, I have new kind of personal space and I can develop a better relationship with people through driving them around.”

 

As import tax barriers are lowered in accordance with WTO rules, China’s auto market appears poised for a lift-off. The current 70-80% tax barrier that makes some foreign imports very expensive will be lowered to 25% by 2006.

 

Enhanced competition should only help bring prices even lower.

 

This is just the news taxi driver Ma is waiting for. “Of course, I would love to have my own car. If money was no problem, I would get a Mercedes Benz but being realistic it would have to be a Volkswagen Jetta.”

 

Based in Shanghai, Volkswagen is planning a big spending spree to take account of other potential customers. According to company spokesman Michael Wilkes, VW plans to invest $6.6bn into new products over the next five years, with a 2007 goal of selling over a million cars a year.

 

Future Problems?

 

For the government, though, WTO will bring both benefits and burdens.

 

It is believed that there are more than 100 different carmakers across China, in addition to the ancillary industries that supply component parts. Many of these companies have a low turnover and produce less than a 1000 vehicles a year, most of which are barely roadworthy.

 

“I wanted a car for its convenience, for most people, a car is a desired item, second to an apartment,” Qiao Na, advertising executive

These firms and their employees will be directly threatened by further WTO integration.

 

“One can expect to see some failures and also some consolidations in the near future as the balance between the Chinese and foreigners shift,” said a Nomura Bank representative who did not want to be named.

 

“The government is moving to protect Chinese firms while it still can.”

 

A recent proclamation that any car made in China using imported materials will be taxed as if it were a foreign vehicle is widely seen as doing just that. The move is seen as a government stalling tactic in an attempt to create Chinese companies capable of operating in a competitive market.

 

“The market is currently changing, it is becoming more complex,” said one Ford representative.

 

The increasing number of cars in the world’s most populous country also brings with it added problems of congestion and pollution.

Heavy demand

 

Traffic jams were an unfamiliar sight in China not so long ago

As people rush to be the first among their group of friends to own a car, Beijing’s roads are seeing an increase of 100,000 cars a year.

 

Traffic along the four major ring roads is already grinding to a halt during peak hours and with still only one in 20 people owning a car there is little physical space to accommodate future drivers.

 

Shanghai already limits car numbers through a strict monthly selling of licence plates. Demand is such that prices at auctions are constantly reaching new highs. Last July’s auction saw plates change hands for over $8000.

 

“There is no way infrastructure can keep up with car industry growth,” says Martin Baker, the Greenpeace spokesman in Hong Kong who visits the Mainland often. “The growing prevalence for Sports Utility Vehicles is worrying,” he says, “I don’t think there is much environmental awareness. Rather, the concern is image.”

 

A penchant for gas guzzlers, either in the form of large people-carriers or flashy sports cars, is noticeable in a society where being obviously rich is important.

 

Porsche has sold 90 cars since the start of the year and like Zhou Wei at Bentley, sales manager Edward Zeng is trying to gain name recognition for his product. “Most of the clients here are Chinese who have lived abroad for a while, they already know the brand.”

 

As sales representatives such as Zhou and Zeng continue to seek out the cream of China’s car buyers, all indicators point to the mainstream market taking off as prices continue to come down.