They're Huge, Heavy -- And Lovable

Gas-guzzling SUVs are all the rage with newly prosperous Chinese drivers

Time was, Zhang Puhong's weekend outings to Fragrant Hills Park in Beijing were a nerve-wracking affair: Zhang, his wife, and their 2-year-old son would all climb into their Citroën Fukang hatchback to battle Beijing traffic on the 40-minute trip for weekly picnics. Since October, though, those trips have gotten much more relaxing. That's when Zhang bought a $27,800 Nissan Paladin sport-utility vehicle. Never mind that the pearl-white Nissan gulps twice as much gas as the Citroën. "This car is big, so it's much safer" in the chaotic traffic, says the 34-year-old manager for a real estate services company. "I really enjoy driving it."

China, in its determined quest to match the West in consumerism, has adopted the SUV craze. For a small but fast-growing group of mainlanders, a Volkswagen Santana, Buick Sail, or Ford Fiesta just doesn't cut it anymore. These Chinese drivers, like their American counterparts, want to hit the streets swathed in layers of heavy metal. Consultant A.T. Kearney Inc. predicts that Chinese SUV sales will surge by 30% annually, compared with 18% growth for cars. That means sales will jump from 160,000 vehicles this year to almost 600,000 by 2008. SUVs are "the highest-growth segment within the fastest-growing automotive market in the world," says Paul Alcala, CEO of Beijing Jeep Corp., a joint venture of DaimlerChrysler and Beijing Automobile Industry Corp. "What better place to be?"

A lot of companies are asking the same question -- and jumping into the market. Beijing Jeep, which began making Grand Cherokees in Beijing a decade ago, added two new models this year: the $16,000 Jeep 2500 and the Pajero Sport, a bigger SUV that tops out at $42,000 and is produced under license from Mitsubishi Motors Corp. General Motors Corp. now makes Chevrolet Blazers in the northeastern city of Shenyang. Toyota this fall started making its Prado, Dario Terio, and Land Cruiser SUVs in China. And Honda Motor Co. plans to launch its CRV in China next year, while Nissan has been making the Paladin in Zhengzhou since February. "There are big opportunities for us in China," says Tadashi Ishihara, general manager of Nissan's China office.

GREAT LEAP UPWARD. Local makers are picking up on the trend, too. Zhongxing Automobile Manufacturing Co. started selling its $9,500 Chiye in June. Yongzhou's Hunan Changfeng Group launched the $23,000 Liebao Feiteng in October. Now, Chinese manufacturers are ready to make the great leap upward into higher-end -- and higher-margin -- models. Since June, 2002, Great Wall Automobile Holding Co., in the central city of Baoding, has made the $10,000 SAFE SUV -- so named to reinforce the message that bigger vehicles are safer for drivers in a crash. Now, it plans to develop an even heftier, more expensive model. "We feel pressure as competition is getting much fiercer," says Shang Yugui, a director at Great Wall.

That competition is great for buyers. Sticker prices have fallen 10% to 15% in the past two years, a trend likely to continue, according to A.T. Kearney. And with roughly 30 companies licensed to make SUVs, some producers are getting nervous. "The SUV market is overheating," warns Sun Jian, deputy managing director of A.T. Kearney's Shanghai office. "There is lots of idle capacity."

An added challenge for SUV makers will be pollution and fuel-consumption standards set to take effect by June, 2005. While the emissions limits are similar to those in the U.S. and Europe, the fuel-economy rules would be among the world's strictest -- and fewer than half the SUVs now made in China comply with them. With eager customers such as Zhang pacing the showroom floors, though, carmakers have every incentive to get their road hogs up to snuff and on the market.

By Dexter Roberts in Beijing

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