Warc Blog

Roads slow China's auto sector

31 May 2013
HONG KONG: Chinese automotive sales are likely to stall in the future because of the country's limited infrastructure, a leading analyst has predicted.

Hou Yankun, an analyst at investment bank UBS Securities, told China Daily that 2013 will see the "last wave" of sharp sales rises for the nation, as he forecast total auto sales to grow 8.4% year-on-year in 2014, with passenger sales rising 8.1% on the year.

Market penetration in China is still low, at 8%, compared to 50% in developed economies. But Hou argued that infrastructure problems will counter the positive trend of increasing affluence and affordability of cars and will act as a block to future growth.

"It will be a challenge for the government to raise the speed of road construction, to keep pace with the acceleration of auto ownership," said Hou.

Many larger Chinese cities including Beijing and Guangzhou have already had to restrict car purchases, while Shanghai has introduced auctions of car licences due to the scale of demand.

Meanwhile, Hou said that serious congestion in cities including Fuzhou, Tianjin and Nanjing had led their governments to consider similar purchase restrictions.

India, by contrast is seeing an improvement in its road infrastructure that is changing driving habits and car purchasing trends.

According to Sumit Sawhney, executive director of marketing and sales for Renault, over the past five years Indians have started to travel over the weekend for short breaks with their families.

He told the Economic Times this has meant that the consumers are increasingly choosing models which they can use both for the daily commute to work and for trips into the country.

Renault has exploited this by heavily redesigning its Duster model, with 34 changes specifically for the Indian market, which has enabled it to become one of the fastest growing companies in the Indian auto sector.

Chinese carmakers have an additional problem in that they have raised capacity too quickly, which has led to downward pressure on margins.

But hedge fund analyst Eric Wu said this trend can still be offset by market growth. "New products are going to stimulate people's desire to buy, and the vast rural area is waiting to be explored," he added.


Data sourced from China Daily, Economic Times; additional material by Warc staff, 31 May 2013

 
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