Volkswagen thinks small to score big
Volkswagen AG's lead in China's compact sedan market this year has helped a handful of German marques sell nearly 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. German automakers had a 24 percent share of China's overall passenger market in July, up from 21 percent at the end of 2013.
That's just 6 percentage points shy of brands from Geely Automobile Holdings Ltd. and other Chinese automakers, according to wholesale data from the China Passenger Car Association.
The auto industry's diverging fortunes coincide with a government drive to stifle extravagance among civil servants. As sales of foreign cars slowed, German automakers offered a broader range 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."
In the first seven months, Volkswagen sold 667,688 New Lavida, New Santana and Sagitar compact sedans in China, according to researcher LMC Automotive. That compared with combined sales of 147,651 vehicles for the top three local models: Geely's Emgrand EC7, Great Wall's Voleex C30 and BYD's Surui.
Compact cars account for about 60 percent of passenger vehicle sales in China, where consumer purchasing power is rising in tandem with rapid economic growth. The segment expanded 15 percent in January-July versus industry growth of 8.1 percent, according to data from CPCA.
"Most Chinese brands won't survive," said analyst Benjamin Lo at Nomura International. Brands from privately run makers such as Geely and Great Wall are most likely to survive because those companies have good management, Lo said.
The market shares of Japanese, U.S. and Korean makers were flat in January through 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.
Two years ago, Volkswagen launched its New Santana with a starting price of 84,900 yuan ($13,800), only slightly more than the EC7's 70,000 yuan.
"People say German cars are of good quality," said Zhang Lei, a 35-year-old office worker in Beijing who bought a New Santana last year. "Why not buy a German car if it's not expensive?"
Sales of the New Santana more than doubled in the first seven months, whereas those of the EC7 and Surui fell 30 percent and 40 percent respectively, according to LMC Automotive. Sales of the Voleex C30 plunged more than 50 percent.
Last month, J.D. Power found that only 16 percent of prospective car buyers in China would choose a domestic brand, compared with 27 percent a year earlier. The California-based research firm attributed the change to foreign automakers that targeted less wealthy customers with brands that are "stronger" than those of local counterparts.
"Chinese brands are cannibalizing each other," said Dong Yang, secretary general of the China Association of Automobile Manufacturers. "They need more cooperation and consolidation."
That's just 6 percentage points shy of brands from Geely Automobile Holdings Ltd. and other Chinese automakers, according to wholesale data from the China Passenger Car Association.
The auto industry's diverging fortunes coincide with a government drive to stifle extravagance among civil servants. As sales of foreign cars slowed, German automakers offered a broader range 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."
In the first seven months, Volkswagen sold 667,688 New Lavida, New Santana and Sagitar compact sedans in China, according to researcher LMC Automotive. That compared with combined sales of 147,651 vehicles for the top three local models: Geely's Emgrand EC7, Great Wall's Voleex C30 and BYD's Surui.
Compact cars account for about 60 percent of passenger vehicle sales in China, where consumer purchasing power is rising in tandem with rapid economic growth. The segment expanded 15 percent in January-July versus industry growth of 8.1 percent, according to data from CPCA.
"Most Chinese brands won't survive," said analyst Benjamin Lo at Nomura International. Brands from privately run makers such as Geely and Great Wall are most likely to survive because those companies have good management, Lo said.
The market shares of Japanese, U.S. and Korean makers were flat in January through 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.
Two years ago, Volkswagen launched its New Santana with a starting price of 84,900 yuan ($13,800), only slightly more than the EC7's 70,000 yuan.
"People say German cars are of good quality," said Zhang Lei, a 35-year-old office worker in Beijing who bought a New Santana last year. "Why not buy a German car if it's not expensive?"
Sales of the New Santana more than doubled in the first seven months, whereas those of the EC7 and Surui fell 30 percent and 40 percent respectively, according to LMC Automotive. Sales of the Voleex C30 plunged more than 50 percent.
Last month, J.D. Power found that only 16 percent of prospective car buyers in China would choose a domestic brand, compared with 27 percent a year earlier. The California-based research firm attributed the change to foreign automakers that targeted less wealthy customers with brands that are "stronger" than those of local counterparts.
"Chinese brands are cannibalizing each other," said Dong Yang, secretary general of the China Association of Automobile Manufacturers. "They need more cooperation and consolidation."
