The ninth Beijing International Automotive Industry Exhibition kicks off on Nov. 18 amid a period of unsurpassed and rapid growth for the Chinese auto industry.
Passenger vehicle sales could grow 30% in 2006, according to estimates by Citigroup Research, and global and domestic automakers have plans in place to double passenger-vehicle manufacturing capacity to 10 million units by 2010. All this explains why China is now the world’s third biggest market in terms of total passenger car, truck, and commercial vehicle sales behind the U.S. and Japan and likely will be No. 2 before the decade is out.
The big trend to watch this year, analysts contend, is the arrival of some much awaited model launches by Chinese automakers. These companies are under considerable pressure from Beijing to develop their own competitive brands in the face of the rapid expansion of luxury models coming into the market from the likes of General Motors (GM), Honda (HMC), BMW, and Porsche. "The biggest difference between this year’s Beijing auto show and previous auto shows in China is that many more luxury and super cars will be on display," notes Hong Kong Citigroup auto analyst Charles Cheung.
The high end
One reason is the rapid wealth accumulation in rich coastal markets such as Beijing, Shanghai, and Shenzhen, where newly rich families are increasingly interested in prestige nameplates—and foreign automakers are rushing in to fill the gap. (Luxury car sales have rocketed upward about 24% during the first eight months of 2006.) Even high-end and small production-run automakers such as BMW’s Rolls Royce are expanding. Rolls is finding a buoyant market in China for its $380,000 super-luxury Phantom, and Chief Executive Officer Ian Robertson recently pointed out that the mainland is now the company’s third biggest market after the U.S. and Britain.
BMW will be rolling out its 5-Series sedans at the Beijing auto show, including the top-of- the-line 530Li, boasting a 268-hp engine, that starts at about $61,000. GM, meanwhile, hopes to build on the Chinese success of its Cadillac brand, which debuted in 2004 with the CTS, XLR, and SRX. Coming next year will be the Escalade sport-utility vehicle and the Cadillac SLS, which will fetch about $63,580.
The Japanese are making a big play in China’s luxury market as well. Next year, Nissan (NSANY) will bring its Infiniti brand to China, including the popular G35 sedan. In September, Honda introduced the Acura RL and TL sedans, which go for about $45,000 and $33,000, respectively. Honda President Takeo Fukui thinks the Acura brand will help the company get its share of "rich, high-end consumers" on the lookout for prestige brands and quality. Toyota (TM) already sells its Lexus ES350 and IS300 luxury vehicles on the mainland (see BusinessWeek.com, Sept. 9, 2006, "Japan Carmakers Outrun Rivals in China").
Perhaps even more interesting to watch this year in Beijing is the industry and consumer reaction to a slew of new brands from Chinese automakers. President Hu Jintao’s government is going all out to build up the branding potential of the domestic industry. The government is guaranteeing loans for domestic carmakers and ultimately aims to boost the domestic market share of Chinese-branded vehicles to 60% by 2010, from less than one-fifth today (see BusinessWeek.com, May 30, 2006, "China’s Drive for Local Car Brands").
China's State Development and Reform Commission, which maps out strategy for key domestic industries, is considering a policy that would require both Chinese and foreign auto manufacturers to do more research and development and design work on the mainland. "The local OEMs [original equipment manufacturers] are jumping on the bandwagon after the central government’s battle cry for zizhu, the Chinese world for self-generated domestic brands," says Lubo Li, senior director for business and market development for J.D. Power’s Asia-Pacific China operation. J.D. Power, like BusinessWeek.com, is a unit of the McGraw Hill Companies (MHP).
Indeed, Chinese automakers are eager to show off their engineering and product designs. China’s fifth-largest automaker, Anhui-based Chery Automobile, will exhibit its hybrid car model A5ISG, the first of its kind to be developed by a Chinese automaker, in Beijing. Small but ambitious Geely Automobile is also promising to roll out its own hybrid vehicle based on in-house technology in 2007. Both have international sales aspirations, too. "Our plan is to become a major exporter," Geely Executive Director Lawrence Ang said in a recent interview with BusinessWeek.com. The company expects to sell compacts and sedans in the U.S. as early as 2008.
One of the most closely watched companies at the Beijing show will undoubtedly be China’s third-biggest carmaker, Shanghai Automotive Industry Corp, or SAIC, which as a joint venture partner with General Motors and Volkswagen (VLKAY), reported revenues of $14 billion in 2005. SAIC turned heads in April when it unveiled plans to spend more than $1.7 billion over the next five years on product development; it also plans to launch its first branded car, a high-end sedan called the Roewe, next year. (The other two of China’s "Big Three" automakers are First Automobile Works and Dongfeng Motor Corporation.)
SAIC developed the car based on the technology rights to two Rover models (the 25 and 75) it acquired from Britain's MG Rover Group last year. Other Chinese models that will get a close look at the Beijing confab are the BYD F8 hardtop convertible, First Auto Works’ Hongqi (Red Flag) HQ3 Sedan, and Geely’s next-gen sports car called the Mybo.
Taken together, the domestic launches are critical for the China’s fledgling domestic industry. "It’s a higher reward and higher risk game" than playing OEM backup and Chinese partner to foreign automakers, notes J.D Power’s Li. "If they fail to click with the customers or meet their expectations, that will cause significant damage that will take longer to recover from." For domestic and foreign automakers with aspirations of grabbing high-end Chinese consumers, it’s definitely show time in Beijing.
To see the highlights of the 2006 Beijing auto show, Click here for the slide show