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Although multinational corporations are investing heavily in China, there are very few industries in China that have a significant impact on the annual performance of multinational corporations. The automotive industry is an exception. In 2006, China’s auto sales increased by 35%, and it surpassed Japan to become the second largest auto market in the world.
At the beginning of the 21st century, China's auto sales were only 500,000 vehicles, compared to 3.8 million vehicles last year: In just one year, the total sales of the Chinese auto market have grown by more than 1 million. For some industries, their top priority in China is to look at long-term establishment of footholds in order to catch up with China’s economic growth. But for auto companies, the Chinese market is already their top priority.
The two leaders in the Chinese auto market are Volkswagen and General Motors. The good news for them is that they are still the most popular brand in this booming market. The bad news is that the two terrible competitors are following closely - Japan and China's car brands.
Compared with some international competitors, Japanese automakers have adopted a more cautious approach to China, but they are slowly starting to build a strong platform. Last year, the Japanese brand’s market share in China was 27.2%, ranking first among brands.
Although Honda and Nissan's market share both declined in 2006, Honda still ranks first among Japanese brands with a market share of 7.6%; Nissan also holds a 5% market share. However, Toyota has been the most powerful in recent times.
Although most international automakers have already started operations in China, Toyota’s market share still increased by 2.3% last year to 6.6%.
“In a market that is so competitive, it is not easy to achieve this growth,†said Tim Dunne of Asia Automotive Resources. "In China, Toyota has begun to gain growth momentum."
Toyota's attitude toward the Chinese market is even more cautious than some of its domestic counterparts, partly due to concerns about China’s anti-Japanese sentiment, and its early efforts to advance the Chinese market have also encountered marketing missteps—in 2003, Toyota was forced to Apologize for a TV ad because some Chinese viewers believe that this TV ad is a reflection of Japan’s military victory over China.
But in the past two years, the company has grown rapidly and is steadily achieving its goal of 10% market share. The company already has five factories in China, plus a factory planned to be opened this year, with an annual production capacity of 690,000 vehicles.
Other multinational companies that have begun to enter the Chinese market include Ford and Peugeot/Citro?n. Last year, Ford’s sales in China doubled to 131,000 units, while PSA Peugeot Citroën also achieved a 43% growth, with sales reaching 201,000 units. Fiat is still struggling, with its sales falling 13% to 31,300 units, while South Korea’s Kia’s car sales have only increased by 5% to 115,000 units.
However, one of the most embarrassing groups in the Chinese auto market is China's domestic brands. Just a few years ago, Chinese brands were still obscure, and the only activity that Chinese companies really participated in was the joint venture of automakers such as Volkswagen and General Motors to establish a car manufacturing company.
However, last year, Chinese auto brands had a 26.4% market share, second only to Japanese brands. Chery Automobile from Anhui Province has become the fourth-largest automotive brand in the Chinese market with annual sales exceeding 300,000 vehicles.
Chen Qigning of Beijing Investment Consulting Co., Ltd. (CT) said: "Chery has quickly become a representative of the Chinese automotive industry and is the most noteworthy company."
Chinese brands can achieve their current status, and the methods used are the same as those used by many other Chinese companies in the past - price wars. Most Chinese brand cars have always been small cars that are competitively priced. The target groups are those who are cost-conscious first-time buyers.
However, this process is not a good day.
Many Chinese brands have serious quality problems that may lead consumers to doubt whether the cars they are spending money on are value for money. Former industry leaders, such as FAW Xiali in Tianjin, have already lost their market position, and their sales volume in the previous quarter declined.
Two Chinese companies are taking different approaches to entering the Chinese automotive market. Two years ago, Shanghai Auto and Nanjing Auto started fierce competition and seized the remaining assets of bankrupt British car manufacturer Rover.
In March of this year, the two companies will compete in the domestic market and each launch a competitive model based on the Rover 75 car, as they all acquired part of the technology of the Rover 75 car.
Unlike most domestic competitors, they will compete for high-end markets rather than low-end ones.
Due to the rapid development of Japanese and Chinese brands, market leaders Volkswagen and General Motors have taken measures to preserve their leading position. A year ago, Volkswagen seemed to be in a dead end. This company, which once controlled more than half of the Chinese auto market, experienced a year-on-year decrease in car sales in 2005, and its market share has fallen below 20%.
But in recent months, the company has worked hard to reverse this decline. Last year, Volkswagen sales increased by 42% to 694,000 vehicles. It also cuts costs by increasing the amount of parts purchased in China.
For analysts, the question is whether the public can introduce enough new models to maintain the current good momentum.