OPPORTUNITIES AND CHALLENGES IN CHINA'S AUTOMOTIVE INDUSTRY - April 2013
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OPPORTUNITIES AND CHALLENGES
IN CHINA’S AUTOMOTIVE INDUSTRY
April 2013
1
INTRODUCTION
• Chinese consumers are expected to play an increasingly important role in the development of the economy as China
rebalances from an export driven to a domestic consumption driven model.
• As the growth of new passenger vehicle sales relative to past years slows, China is still expected to remain the
world’s largest producer and consumer of automobiles. It will outperform both the European and US markets in the
midterm with its projected high single digit growth.
• Expansion in manufacturing capacity continues at an unabated speed and with overcapacity already showing,
manufacturers threatened most are expected to increase industry competitive pressure by entering into new
segments with low-price market penetration strategies.
• The aftermarket on the other hand, still finds itself at a very early stage of development and provides a myriad of 2
opportunities for component manufacturers and service providers who are able to develop and implement the right
strategies to capitalize on the significant growing aftermarket demand with the aging of existing passenger vehicles
base.
• As China’s automotive market enters its next stage of development, both challenges and opportunities await.
Companies that develop the right strategies and contingent plans will be ensured continued success in this dynamic
market.
automotive.bc@ipsos.comCHINA AUTOMOTIVE
INDUSTRY TRENDS
3China Automotive Industry Trends NEW PASSENGER VEHICLE MARKET TRENDS
THE GROWTH RATE OF NEW PASSENGER VEHICLE (PV) IS EXPECTED TO SLOW TO SINGLE
DIGIT GROWTH BETWEEN 5%-9% OVER THE NEXT FEW YEARS
CAGR
New PV Sales Forecast Positive Impact
NEW PASSENGER VEHICLE MARKET TRENDS
‘12-‘18
Unit: Million Per-capita Is expected to increase at CAGR of 10%
28 9% disposable over the next years
26.3 income
26 Fast Urbanization rate is expected to grow
24.2 urbanization from 52.6% in 2012 to 55% in 2015
24
Auto finance Is expected to increase from 15% in
22.2
penetration 2012 to 30% by 2022
22 rate
20.3
20 21.0
5% Negative Impact
18.7
20.0
18 17.1 19.1 Economic 2013 GDP growth target has been
15.7
18.2 slow down lowered to 7.5%
16 17.3
Negative More cities may implement policies to 5
16.5
15.7 Year policy impact restrict the number of new automobile
14 registrations
'12 '13(E) '14(E) '15(E) '16(E) '17(E) '18(E)
Discontinuation of subsidies for new
Optimistic Scenario Conservative Scenario vehicle purchases
Note: The statistics includes the domestic produced vehicle and imported vehicle sold in China Potential negative impact of rising fuel
Source: China Association of Automobile Manufacturers (CAAM), Ipsos Business Consulting analysis cost and potential new taxation such as
traffic congestion and pollution fees
automotive.bc@ipsos.comWHILE PAST PV GROWTH HAS PREDOMINATELY COME FROM COASTAL CITIES, MID AND
WESTERN REGIONS HAVE BEEN EMERGING AS THE NEW GROWTH REGIONS
NEW PASSENGER VEHICLE MARKET TRENDS
China New PV Sales 2006 - 2011 CAGR (%) By Region Comments
The mid-west regions are receiving more
attention and investments from auto OEMs
as the government is focusing development
on these regions
Due to the relatively high price sensitivity of
Gansu first time car purchasers in these regions,
low-to-mid-end segments are expected to
Qinghai Ningxia
drive sales
Increasing number of auto OEMs have
Chongqing Anhui
begun to adjust their organization structure 6
Jiangxi
to decentralize marketing related decision-
Growth Rate making to regional business units in order
40-50% to adapt to various and changing demand
35-40%
within each region
30-35%
25-30%BESIDES THE SLOWER DEMAND GROWTH, STRUCTURAL OVERCAPACITY IS ANOTHER
CHALLENGE FACING AUTO OEMS AND AUTO PARTS MANUFACTURERS
Planned PV Production Capacity and Forecasted Capacity
NEW PASSENGER VEHICLE MARKET TRENDS
Utilization Rate of Auto OEMs Comments
Unit: Million
40 100% While utilization rates may differ between
OEMs, the overall industry trend of
35 33.5 overcapacity is clear
90%
30.3
Optimal Capacity
30 26.9 Slower growth in the domestic PV market
Utilization Range 80%
will also push both domestic OEMs and
25 16.4
auto parts manufacturers to focus on
20.8 15.5 70%
export markets
20 13.6
17
60% With continued overcapacity and slowing
15
11.5 demand growth, some forms of industry
8.6
50% 7
10 consolidation and streamlining can be
13.3 14.8
17.1
expected over the coming years
5 40%
8.3 9.3
Price pressures will also become more
0 30% apparent for auto parts manufacturers in
2011 2012 2013(E) 2014(E) 2015(E) Year
order to remain competitive
Local Brand Sino-JV Local Brand Sino-JV
Production Production Capacity Capacity
Capacity Capacity Utilization Rate Utilization Rate
Source: Ipsos Business Consulting analysis automotive.bc@ipsos.comAS CAR REPLACEMENT BECOMES A KEY DRIVER OF NEW PV SALES, OEMS WILL FACE
MORE PRESSURE TO QUICKLY ADAPT TO CHANGING CUSTOMER EXPECTATIONS
New PV Sales by Car Segment Comments
NEW PASSENGER VEHICLE MARKET TRENDS
Mid-size sedan, full-size sedan and SUV segments
Mini- 17% 16% 13% are expected to gain more market share, among
21%
vehicle 3% which SUV will become the most promising
3%
4%
Mini (A00) 5% 13% segment with a CAGR of 20% over the next three
13%
14% years
13%
Small (A0)
The competition in the SUV segment is expected to
38%
remain fierce with 28% of all new models presented
38%
36% during the Guangzhou car exhibition in Nov. 2012
Medium (A) 36%
being SUVs
12%
Development of more fuel-efficient and low-
12%
Large (B) 12%
2% emission SUVs by means of adopting small- 8
11%
2% 2% 3%
Luxury (C) 2% 4% 3% displacement turbocharged engines and lighter
MPV 3%
13% 16% materials will be necessary for this segment to
SUV 9% 11%
remain attractive
2010 2011 2012 2015(E) Year
Note: Sedan is mainly segmented based on the wheelbase and engine displacement.
Segment examples: Mini(A00): Chery QQ; Small(A0): Kia K2; Medium(A): Chevrolet Cruze; Large(B): VW Passat; Luxury(C): Audi A8
Source: China Passenger Car Association(CPCA), Ipsos Business Consulting analysis
automotive.bc@ipsos.comTHE BATTLE FOR MARKET SHARE RAGES ON AS SINO-JVS INCREASE THEIR FOCUS ON SMALL
SIZED SEDANS AND LOCAL OEMS SHIFT THEIR FOCUS TO THE MID AND UPPER SEGMENTS
Sino-JVs will continue to push into smaller and
Proportion of Sino-JV Sales to Total Sales by PV Segment cheaper segments
NEW PASSENGER VEHICLE MARKET TRENDS
100% Increasing number of foreign brands are planning to
93.9% 94.2% introduce new models targeting the mini (AOO) segment
91.4% Large (B)
Examples include an upcoming brand from VW, the K1
90%
from KIA, the new Alto from SUZUKI
80%
Domestic brands will continue to upgrade to meet the
70.9% 70.8% 70.1% Medium (A) more upscale image aspirations of Chinese consumers
70%
64.5% During the Beijing Auto Show in April 2012, 84 of 120 new
61.8% Small (A0) 9
60.7% models premiered were independently developed by
60% domestic brands, most of which targeted the middle and
61.4%
SUV upper segments (e.g. Roewe 950 from SAIC and the
58.0%
56.9% Hongqi H7 from FAW)
50%
2010 2011 2012 New regulations on government car procurement favoring
Source: China Passenger Car Association(CPCA), Ipsos Business Consulting analysis
domestic brands pose a good opportunity for domestic
players to elevate their brand image
automotive.bc@ipsos.comChina Automotive Industry Trends PASSENGER VEHICLE AFTERMARKET TRENDS
THE DEVELOPMENT OF CHINA’S AUTOMOTIVE AFTERMARKET PROVIDES A MYRIAD OF
OPPORTUNITIES FOR BOTH PRODUCTS AND SERVICES
China Automotive Industry Value Chain
PASSENGER VEHICLE AFTERMARKET TRENDS
High
Derived After-sale service
R&D Rescue Used-car Rental Recycle
Aftermarket service
Value Added
Component Vehicle Sales Beauty Maintenance Repair
Manufacture
Insurance Finance Sales
OEM
R&D Manufacture Service
Aftermarket’s Contribution to Overall Aftermarket’s Contribution to Overall Profit
Automotive-related Sales Margins of 4S shops
11
30% 70%
30%
10%
China Developed markets* China Developed markets*
Note*: Developed markets include countries such as U.S., Japan and Europe
Source: Ipsos Business Consulting analysis automotive.bc@ipsos.comVEHICLES SOLD DURING CHINA'S AUTO BOOM ARE BEGINNING TO AGE, WHICH PRESENTS
SIGNIFICANT OPPORTUNITIES IN CHINA’S UNDERDEVELOPED AUTOMOTIVE AFTERMARKET
% of
PV Population Breakdown by Car Age cars repaired
PASSENGER VEHICLE AFTERMARKET TRENDS
Average Repair / maintained
Unit: Million 97.6* car age requirement at 4S/3S shops
1 yr
15.7 Under
2 yrs 56.9 0-3
yrs warranty
14.4 ~90%
3 yrs
14.1
4 yrs
10.5
5 yrs
>8 yrs 6 yrs 6.7
7 yrs 6.2 32.7 4-8
8 yrs ~50%
5.2 yrs
4.1 12
2.3
2.0
12.0
8 >8THE HIGH GROWTH EXPECTED IN CHINA’S USED-CAR MARKET WILL FURTHER DRIVE THE
DEMAND FOR AFTERMARKET PARTS AND SERVICES
Used-Car Sales Forecast Comments
PASSENGER VEHICLE AFTERMARKET TRENDS
Unit: Million The demand for aftermarket parts and
CAGR service will not only be driven by the size
31% of the car population, but also by the
20
development of the used-car market
16 The aim of the upcoming technical
standards for used-car evaluation will
12 regulate the market by standardizing the
evaluation process and items
18.7
8 Greater transparency in used-car
14.3
10.9 conditions will in turn support the
4 8.3 development of the used-car market
6.4
4.8
0 Opportunities for auto parts
manufacturers to work closely with used-
2012 2013(E) 2014(E) 2015(E) 2016(E) 2017(E)
car dealers to provide parts as well as
related service such as core parts 13
Proportion of used-car and new car sales as a percentage of total evaluation are emerging
vehicle sales in volume
150%
100%sales
Used-car 20%
75%
50% 80%
New car sales
25%
0%
China Developed
market
Note*: Developed markets include countries such as U.S., Japan and Europe
Source: China Automobile Dealers Association(CADA), Ipsos Business automotive.bc@ipsos.com
Consulting analysisIN COASTAL REGIONS GROWTH OPPORTUNITIES ARE SHIFTING TOWARDS LOWER TIER CITIES,
WHILE WESTERN REGIONS STILL LAG BEHIND IN OVERALL DEVELOPMENT OF NETWORKS
China PV park size by regions in 2011
PASSENGER VEHICLE AFTERMARKET TRENDS
West China Region East China Region
Consisting of Xinjiang, Consisting of
Gansu, Qinghai, Tibet, Guangzhou, Zhejiang,
and Ningxia Shanghai, Jiangsu,
Accounts for very small Beijing, Shandong and
Xinjiang Gansu Hebei
share of total China PV Beijing
Hebei Provinces
population size with Accounts for almost 50%
Qinghai Ningxia Shandong
each province Tibet of total China PV
Jiangsu
representing around 1% population size
of the total Shanghai
Zhejiang
Guangdong
14
East coast regions will remain dominant in the consumption of auto related goods while middle and west regions are
expected to embrace the sales boom in auto related products over the next 3-5 years
Auto parts manufacturers will need to differentiate their channel strategy by region as auto parts and service demand differs
in regions due to various terrain / road conditions, car model and maintenance preferences
Distributor network expansion and partnerships will help auto parts manufacturers cope with the low brand awareness and
low accessibility of auto parts in lower-tier cities in east coast regions, and lower-tier provinces in middle and west China
Source: Ipsos Business Consulting analysis automotive.bc@ipsos.comPV AFTERMARKET SERVICE IS A HIGHLY FRAGMENTED MARKET DUE TO THE DIFFERENT
NEEDS AND REQUIREMENTS OF PRIVATE CAR OWNERS
Number of PV Car Models
PV Population Breakdown by Ownership
PASSENGER VEHICLE AFTERMARKET TRENDS
2002 vs. 2011
500
Privately-owned 30%
81%
Company-owned 70%
30
19%
2000 2011 2002 2011 15
Aftermarket services for PVs is primarily a business to consumer (B2C) market due to the high percentage of privately owned vehicles
The increase in variety of car models made available over the past decade in China has also led to a diversification in aftermarket
needs of car owners based on price points of cars owned in addition to personal preferences
Channels for aftermarket parts and services have had to evolve in order to serve the different customer segments, with workshops of
different classes offering spare parts of varied price points and quality
Note*: Include different configurations under a certain car model
Source: China Association of Automobile Manufacturers (CAAM), Tecent automotive.bc@ipsos.com
AutoAUTO PARTS MANUFACTURERS WILL NEED TO DEVELOP NEW STRATEGIES TO CAPTURE
GROWTH OPPORTUNITIES IN THE INDEPENDENT AFTERMARKET (IAM) CHANNEL
Distribution Channel Map of the PV Aftermarket in China
PASSENGER VEHICLE AFTERMARKET TRENDS
OES IAM OE and Non-OE parts
OE parts manufacturers Channel
Channel manufacturers
First-tier distributors
Car-type Professional Brand
distributors parts distributors
OEM distributors
(parts center / parts
department)
Second-tier distributors
4S/3S Workshops
End-users End-users
Note: OES – Original Equipment Service Channel, OEM – Original Equipment Manufacture, OE – Original Equipment Common flow 16
Rare flow
Emerging flow
Shifting Channel Increasing number of OE-brand parts manufacturers have been shifting focus to the
Focus IAM channel, with the IAM channel expected to capture more share of the maturing
PV aftermarket
Emerging New business models in the IAM channel are appearing to enhance auto parts manufacturers’
Business Model competitiveness as well as cope with the counterfeiting issues. For example, Bosch started running
directly-managed workshops in China and is also in midst of promoting genuine parts by establishing
on-line stores
Source: Ipsos Business Consulting analysis
automotive.bc@ipsos.comWITHIN THE IAM CHANNEL, THE FAST FITTER SEGMENT HAS EXPANDED RAPIDLY OVER
PAST YEARS AND IS OFTEN CONSIDERED AS AN ATTRACTIVE CHANNEL FOR AFTERMARKET
PASSENGER VEHICLE AFTERMARKET TRENDS
IAM Sub Channels Parts Availability
Service efficiency is a key success factor for fast
fitters
2012 store
Workshop type Future growth Market position* It is essential for parts manufacturers to manage
number
their product inventory and provide short lead
times in order to support distributors to serve fast
Traditional fitters’ needs
125,700
workshop
Fast fitter 104,800
Beauty shop 74,500
Parts Requirements
Lubricants and
Parts are expected to possess easy-replacement 17
56,800 features to enhance repair efficiency as well as
Tire
lower skill requirements of technicians
Others 8,800 N/A N/A As parts repair rates are relatively high in the IAM
channel, it is necessary for parts manufacturers to
provide a full range of spare parts to address the
needs of the repair market
Low High
Note*: Market position refers to customers’ perception
Source: Ipsos Business Consulting analysis automotive.bc@ipsos.comSIMILAR TO FOREIGN MARKETS, THE PV AFTERMARKET IS EXPECTED TO EVOLVE FROM ITS
CURRENT PRICE COMPETITION BASED MODEL TO A BRAND COMPETITION BASED MODEL
The Four-Stage Evolution of the PV Aftermarket Service Model
PASSENGER VEHICLE AFTERMARKET TRENDS
Build brand reputation and
4 corporate culture
Current stage
Differentiate E.g. brand awareness,
3 service offering perceived quality, brand
Improve customer associations, brand loyalty
2 relationship E.g. customized service
management
Provide professional
repair service E.g. VIP programs
1
18
E.g. repair success rate
Closer cooperation between aftermarket franchise stores and will-fit brands is expected as franchise stores leverage the cost-
effectiveness of will-fit brands as a unique selling point, while will-fit brands utilize the existing franchise network to increase brand
awareness and speed to market
Besides parts quality and price, auto parts manufacturers are placing more emphasis on technical support, product training, claim
policy and warranty period as a result of higher expectations from customers
Source: Ipsos Business Consulting analysis automotive.bc@ipsos.comWITH GOVERNMENT SUPPORT, CHINA’S UNDERDEVELOPED REMANUFACTURING
INDUSTRY IS EXPECTED TO GREATLY PROFIT FROM THE GROWING AFTERMARKET DEMAND
PASSENGER VEHICLE AFTERMARKET TRENDS
Proportion of Vehicle Parts being Recycled in
Different Countries No. of Remanufacturing Pilot Enterprises
95% 95% Over 30
80% 14
First round (2008) Second round (2012)
Types of Remanufactured Products
Water pump 19
Engine
Lubricating
Transmission
oil pump
10% Starter
Transmission
Alternator
shaft
USA European Union Japan China Parts remanufactured Examples of added
by first-round pilot remanufactured
enterprises parts types
Source: National Development and Reform Commission, Ipsos Business
Consulting analysis automotive.bc@ipsos.comPOSITIONING WILL PLAY AN ESSENTIAL ROLE IN ORDER FOR COMPONENT MANUFACTURERS
TO SUCCESSFULLY ESTABLISH REMANUFACTURED PRODUCTS IN THE MARKET
Remanufactured
PASSENGER VEHICLE AFTERMARKET TRENDS
Price of Spare Parts Target Market Features Product Advantage Comments
Average price Advantage in comparison Improving awareness of
range from to overhauled parts: remanufactured parts
10,000~50,000 99% Lower price will be essential to
CNY/unit Lower breakdown develop potential
High-value customer segments
frequency
parts
Shorter repairing hours
Longer lifespan
1% Longer warranty period
Replacement Repair
Average price Advantage in comparison Pricing strategy is required
range from 70% to will-fit parts: to compete with will-fit 20
200~1,000 Longer lifespan parts due to customers’
CNY/unit Lower breakdown high price sensitivity
Low-value Distributors will play an
frequency
parts 30% important role in
promoting remanufactured
products
Replacement Repair
Source: Ipsos Business Consulting analysis
automotive.bc@ipsos.comCONTACT US Wijaya NG
Head of Consulting, Shanghai
Email: wijaya.ng@ipsos.com
Markus SCHERER
Senior Manager, Shanghai
Email: markus.scherer@ipsos.com
AUTOMOTIVE RESEARCH AND CONSULTING FROM IPSOS
A leader in fact-based consulting, Ipsos is trusted by top businesses, government sectors and institutions worldwide. We support domestic and international businesses in
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Having opened our first office in 1994 in Hong Kong, Ipsos Business Consulting is immensely proud of its unique Asian heritage. Over the years we have steadily expanded
across the Asia Pacific into Europe and the USA, and recently opened our first office in Africa. We have grown from being an Asia Pacific market intelligence company to
become an integral part of the Ipsos global network, with a presence in 85 countries around the globe. Our automotive practice can also trace its roots back to the 1990s
when we quickly established ourselves as a leading provider of research and consulting services to automotive clients operating around the Asia Pacific. Today our service
range covers Auto OEM, Construction Vehicle OEM, Vehicle Parts and other related industries such as lubricants and paints & coatings .
Today, Ipsos Business Consulting continues to provide clients doing business in the automotive industries by providing practical advice based firmly in the realities of the
market place. With over 19 years experience in the automotive market we offer clients the best geographical coverage and solid experience across the region.
Email: automotive.bc@ipsos.com
Visit: www.ipsosconsulting.com
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