Auto sales gearing up

China's vehicle market, the world's biggest after the United States, is expected to grow steadily this year boosted by strong demand and the booming economy.

Jiang Lei, vice-chairman of the China Association of Automobile Manufacturers, predicted car sales this year would climb by 15 percent to surpass 8 million units.

Last year, sales rose by a quarter to 7.22 million units.

"We are optimistic about the market this year as vehicle demand at home and abroad will remain strong," Jiang said.

Automakers will focus more efforts on quality and service to expand sales this year, he said.

"Price competition alone will not win over customers," he added.

In the passenger car segment which includes cars, sedans, sport utility vehicles and multi-purpose vehicles 2007 will see steady market growth again once the huge inland market is explored and if there are no unexpected negative factors, said Yale Zhang, director of emerging-markets vehicle forecasts for auto industry consultancy CSM Asia Ltd in Shanghai.

Since early 2005, the inland market has overtaken large coastal cities to become the major growth area for passenger car demand in China, which has enabled a sustainable growth pattern and good sales of indigenous brands such as Chery and Geely.

Passenger car demand this year will reach 5 million units from 4.1 million units in 2006.

There will be around 52 new models entering the market compared to the record 46 last year, Zhang said. More interestingly, these 2007 new models will mainly come from local brands.

Over the past two years, foreign brands were the stars in product launches. However, from 2007, foreign carmakers will mainly start to change the model generation: not as many whole new models will be launched because their product lines are almost filled.

Therefore, Zhang said, local brands will play a major role in stimulating demand this year.

"As demand shifts to inland markets, local brands have the advantage to penetrate even deeper than foreign models," he said.

Inland private buyers pay more attention to price than their counterparts in the coastal regions, he said. Local brands' micro and compact models are set to push or stimulate demand in inland second-and third-tier cities this year.

Of course, Zhang added, new products are always a "double-edged sword".

"Too many new models will put pressure on current models and may result in a stability problem of the current price structure," he said.

Steady price reduction is anticipated and is not expected to cause problems.

However, if there were a price war, the market would experience a slowdown like in 2004, he said.

Another major factor affecting the passenger car market is gasoline prices, he said.

The National Development and Reform Commission, China's top economic planner, cut wholesale gasoline prices by 220 yuan per ton on January 14 in line with changes in the global oil market.

Therefore, at least for early 2007, the gasoline price should not be a major negative factor in the passenger car market, Zhang said.

However, German carmaker Volkswagen, the biggest player in the passenger car market, is taking a conservative approach to the 2007 market.

Winfried Vahland, Volkswagen's China chief, predicted the car market in China would grow by 7 to 12 percent this year.

The company's 2006 sales in China increased by almost a quarter to 711,298 cars from the previous year.

Exports

China's vehicle exports will continue to be in the fast lane this year, despite the government's tightened regulations on overseas vehicle shipments.

Xu Changming, an auto analyst with the State Information Center, predicted 2007 vehicle exports would reach 500,000 units, up from 340,000 units last year.

The 2006 figure, double the previous year's, was mainly boosted by local brands' low-cost cars.

According to rules published in early January by the Ministry of Commerce, China will implement a licensing system from March 1 to prevent domestic carmakers from cut-throat battles abroad and to weed out firms that are too small to compete internationally.

"Only small firms selling a tiny number of cars abroad will be deprived of exporting rights by the rules. China's vehicle exports will continue to grow rapidly (this year)," Xu said.

There are more than 1,000 companies in China exporting vehicles, and last year half of them sold less than 10 units abroad each, according to Xu.

Chery, based in East China's Anhui Province, said it aims to export 80,000 to 100,000 cars this year, up from 50,000 units last year.

(China Daily 03/07/2007 page12)