Thursday 28 Mar 2024
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VOLKSWAGEN AG’s lead in China’s compact sedan market this year has helped a handful of German marques sell almost as many passenger cars as China’s 25 local brands combined — a trend industry watchers say can only lead to consolidation.

Competitive pricing has made four Volkswagen models China’s best-selling compacts, boosting Germany’s share of the overall passenger market to 24% in July from 21% at the end of 2013.

That’s now just 6 percentage points shy of brands from Geely Automobile Holdings Ltd, Great Wall Motor Co Ltd , BYD Co Ltd and other Chinese automakers, according to wholesale data from the China Passenger Car Association (CPCA).

The diverging fortunes coincide with a government drive to stifle extravagance among civil servants, which has led to slowing sales of luxury foreign cars and broadening ranges of affordable, high-quality models.

“European brands, especially Volkswagen, have been ferocious in winning market share,” said Yale Zhang, managing director of researcher Automotive Foresight. “Chinese brands’ biggest woe is losing ground in the compact segment because of the onslaught.”

Volkswagen sold 667,688 New Lavida, New Santana and Sagitar compact sedans in China in the first seven months of the year, according to researcher LMC Automotive. That compared with the 147,651 vehicle total of the top three local models — Geely’s Emgrand EC7, Great Wall’s Voleex C30 and BYD’s Surui.

Compact cars account for about 60% of passenger vehicle sales in the world’s largest auto market, where consumer purchasing power is rising in tandem with rapid economic growth. The segment expanded 15% in January to July versus industry growth of 8.1%, showed data from CPCA.

The market shares of Japanese, US and Korean makers were flat in January to July. In contrast, German manufacturers — and Volkswagen in particular — have gained by almost matching local brands’ prices and because of a reputation for high quality.

Volkswagen launched its New Santana two years ago with a starting price of 84,900 yuan, only slightly more than the EC7’s 70,000 yuan.

Sales of the New Santana more than doubled in January to July, whereas those of the EC7 and Surui fell 30% and 40% respectively, according to LMC Automotive. Sales of the Voleex C30 more than halved.

JD Power last month found only 16% of prospective car buyers in China would choose a domestic brand, compared with 27% a year earlier. The California-based research firm attributed the change to foreign carmakers targeting less wealthy customers with brands that are “stronger” than those of local counterparts.

“Chinese brands are cannibalising each other,” said Dong Yang, secretary general of the China Association of Automobile Manufacturers. “They need more cooperation and consolidation.” — Reuters


This article first appeared in The Edge Financial Daily, on Sept 17, 2014.

 

 

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