The World’s Largest Auto Market Shifts Gear

Charles Mills

Currently, new-vehicle shoppers in China have the world’s widest range of choices, with 94 brands and 476 models from which to choose, according to our research and analysis with LMC Automotive.* That compares with fewer than 40 brands and nearly 100 fewer models available in the U.S. market, the second-largest automotive market in the world in 2011.

Entry-Level Segment Sales Hardest Hit in China’s Auto Market

In our overall analysis of global sales this year, we see that China new-vehicle sales in the first quarter of 2012 increased by just 2% from the same period last year. This sluggish sales growth has affected sales in entry-level vehicle segments more than other segments, despite a continued increase in retail gas prices in China. Fuel prices in China are now more than 20% higher than the average price in the United States.

Typically, consumers trade down to smaller, cheaper and more fuel-efficient vehicles when gas prices rise, but current China market dynamics are challenging this trend. Luxury vehicle sales are continuing to surge, driven by consumers with deep pockets who are less price-sensitive. Additionally, manufacturer-provided dealer incentives have lowered consumer-facing transaction prices. In contrast, entry-level vehicles are falling victim to the gas-price increase as consumers exhibit a greater level of price sensitivity.

The three entry-level vehicle segments—which include minicars, sub-compact and compact—account for 55-60% of China passenger-vehicle sales, according to LMC Automotive’s China analyst, John Zeng. Sales of entry-level vehicles in the first three months of 2012 declined by 5 percent from the same period last year.

Minicars led the deceleration among these three segments, with a 30% decline in sales vs. the same three-month period in 2011. China domestic-brand sales have been strongly impacted by this situation, as has their dealerships’ profitability.

LMC Automotive forecasts a 9% growth in passenger-vehicle sales in 2012, a much lower rate than in previous years when China’s new-vehicle sales surged at double-digit rates. However, the growth is still well beyond most other regions of the world. China’s passenger-vehicle market is expected to grow at a compounded annual rate of 12.4% during the next four years and will reach an estimated 20.9 million units annually by 2015.Charles Mills, vice president, global retail experience at J.D. Power and Associates

*J.D. Power and Associates and LMC Automotive have a strategic alliance to share global data and produce sales forecasts with analysis and intelligence from LMC Automotive.

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