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China remains target market for auto brands

News, 19 April 2017
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BEIJING: Last year 11m cars were recalled in China, just over 120,000 of which were domestic brands, but this apparent discrepancy is not deterring foreign brands from targeting what remains a growing market.

Chinese auto brands, which accounted for 41% of cars sold last year, made up just 1% of recalls, prompting suggestions from some observers that AQSIQ, the country's quality management institute, is not enforcing standards evenly, although others believe local brands prefer a more low-key approach.

"Chinese automakers are still concerned about whether recalls will have a negative impact on their brand, thus they are less likely to initiate recalls and might find other ways to solve their quality issues," Xing Lei, chief editor of China Automotive Review, told the Financial Times.

But avoiding high-profile recalls may not be enough to save them in what is an increasingly crowded market. "There's just not room enough for that many players any more," said Johan Karlberg, a Shanghai-based partner with global consultancy Roland Berger. "Many of the smaller ones will simply die a slow, suffocating death."

Foreign brands take a different view of their quality image following a consumer rights show on China Central Television two years ago which accused one foreign manufacturer of selling vehicles with faulty gearboxes and accused others of carrying out unnecessary repairs and replacements.

As a result, they "usually make active moves such as auto recalls to show their initiative in maintaining quality in China … [and] to maintain their relationship with the government", Xing said.

Car sales hit a record 24.38m in China last year and were up 7% in the first quarter of 2017, helped by a growing middle class in lower tier cities, the Shanghai Daily reported.

Changing consumer tastes and Government incentives are shaping the market, with manufacturers increasingly focused on ensuring a presence in the SUV and electric categories – something expected to be evident in the Shanghai Motor Show, which opens today.

"[China] is the strategic market for global carmakers," said Marc Mechai, an automotive analyst with Accenture in Paris. "It remains to be seen with which vehicles, and how."

Data sourced from Financial Times, Shanghai Daily; additional content by WARC staff

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