1.3 billion reasons why doing business in China is good for the Car industry
Progress is a wonderful thing, isn’t it? As China develops, ownership of all things seen as desirable are on the rise. I have mentioned this before in other posts – China’s car ownership is rocketing. China’s humungous population only has an estimated car ownership rate of about 3%, compared to that of 80% in the USA – see BBC. So it should not come to anyone as a big shock that China, along with India are seen as the next big markets for production and sales. Car sales have increased by as much as 2.5%. At the same time competition domestically for doing business in China, is turning fierce as local car brands strive for quality and performance.
This phenomena is not exclusive to any one brand – Audi which is viewed as a luxury car, has seen its sales shoot past its competitors. It posted a 8.5% increase – while other brands namely Volkswagen, Daimler and BMW have had more modest gains ranging from 2-2.5%. See the full story from the WSJ.
With all these gains being reported, I wasn’t surprised to read that Volkswagen are investing more capital into China, and have ear marked Chengdu for a new factory. An interesting observation – whenever there’s a local car factory the local consumer often buys in favor of that particular brand. For example if you go to Wuhan, in Hunan province there’s an overwhelming number of Citroen cars and it’s a similar story in other cities. So with this in mind it would be fair to assume Volkswagen numbers will rise to an enviable rate of ownership in Chengdu, that is to say when production is up and running. Volkswagen will be looking more nationally than just Chengdu for sales gains, and for their increased Chinese business market share. Although it’s not so cut and dry, because Chengdu does already have one of the highest rates of car ownership in the country – so it would be a strategic location for Volkswagen to leave their mark. See Couriermail.
This leads us nicely onto the next point, what about the green car? Well don’t worry because China is getting some of that too. Honda is one of the leaders in Hybrid Technologies and it’s seen China’s appetite for greener cars grow. As fuel prices increase the “regular guy” on the street looks for something more economical – I honestly don’t believe the “regular guy” on the street cares about “green” or not. China is a nation of savers more than spenders. This is especially the case for lower earners, for them saving cost is not necessarily connected to any high flung notion of saving the environment – unless it leads to more money in their pockets. But I’m hoping that more economical, hopefully means greener, and I really hope this translates into something tangible, because at 3% car ownership China has a long way to go. There’s always the other side too, and even though the higher earners still feel the pinch of rising oil prices, they still crave those guzzling status cars. The reasons to do business in China for Honda are multiple, but right now they are simply looking for a bigger chunk of the cleaner car sector. Honda now has plans to work with local partners. Read on…
I can hear some of you moaning about this not being progress, and you may question the implications on the environment. Well interestingly – China’s electric vehicle ownership is at admirable levels, when compared to other parts of the world. It’s worth noting that there are many more electric bikes and small cart like e-cars on the road in China than actual cars, although this might not be as noticeable in larger cities like Shanghai. If you were to look at smaller cities on the other hand, or cities further away from the rich coastal areas that attract most of the Chinese business as well as foreign, you would agree. The users of these e-vehicles range from police, taxis, disabled drivers (who often double as taxis) to the low income earners. The latter by the way, make up the majority of China’s bustling population. Some Chinese leaders believe that pollution will be one of China’s biggest socio-economic obstacles in the near future, and after being here for 8 years or more I would have to agree. View the full story at Earth Times.
That’s great? Not necessarily. Electric vehicles need… that’s right “electric” – so the question is, how is it produced and where does it come from? The Daily Mail examines this in their article on “Proof electric cars DO cause more pollution than normal ones: Study shows impact is worse than petrol-powered vehicles”.
Even though China’s consumption levels (how much they spend) are markedly lower on average than Europe and North America, they still have tremendous buying power due to its population size. There’s one thing that is certain, when a person sees their neighbor get richer, or buying cool things (Iphones, Ipads are the perfect example), that same person will try to get it too. What will or even what are already the implications for the environment? Only time will tell. Whatever the implications might be, business opportunities in China are still increasing, and the economy looks to continue its growth for the foreseeable future. There are also sure to be further negative impacts on the environment, unless greater steps are taken. For more on this please read the full story.