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China Car Market to Expand 8% on SUV, Small-City Demand

China’s passenger-vehicle sales will expand by an average 8 percent a year to reach 22 million in 2020, driven by demand for sport-utility vehicles and rising incomes in smaller cities, according to McKinsey & Co.

SUV sales will triple in the 10 years from 2011 for the fastest growth among the vehicle segments, as Chinese consumers become wealthier and buy bigger vehicles, according to a report released today by McKinsey. China’s smaller cities will account for almost 60 percent of new car deliveries by the end of the decade, up from 40 percent in the preceding period, it said.

“Chinese consumers are growing more sophisticated about cars and their tastes are evolving,” Arthur Wang, a Hong Kong-based partner at the consulting firm, Wenkan Liao and Arnt-Philipp Hein wrote in the report. “Many have already purchased a first, entry-level car and will be ready to upgrade to newer and better models.”

General Motors Co., Ford Motor Co. and Volkswagen AG are adding capacity and introducing a wider range of models in China to cater to the world’s biggest pool of first-time buyers. The top 10 automakers have announced at least $38.4 billion of investments in the past two years to tap growth in a market where McKinsey estimates car ownership will remain at half the U.S. rate in 2020.

Passenger-car deliveries rose 5.2 percent to 14.5 million last year, slowing from the 33 percent growth in 2010, according to data from China Association of Automobile Manufacturers.

‘Bigger Car’

China could contribute 35 percent of the world’s car market growth in the decade to 2020, driven by increasing car purchases from consumers in so-called third- and fourth-tier Chinese cities, Wang and his co-authors wrote in the report.

Sedans will account for 70 percent of the total car market in 2020, with SUVs making up 20 percent of sales, according to the report. The share of small cars will shrink to 19 percent from 23 percent of sedan sales, while larger models will increase to 8 percent from 5 percent.

“The Chinese consumer will choose a bigger car, as long as he or she can afford it,” the authors wrote. “Even in the budget segment, we expect consumers increasingly to choose larger cars.”

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