WITH China's auto market in the throes of a slowdown, carmakers are heading west to underdeveloped regions where cars are fewer and opportunities greater.

After years of double-digit growth, nationwide car sales began to lose steam last year, with a meager 4 percent increase this year by August.

The success of the biggest car exhibition in western China, held earlier this month, is a lesson in the new geography of the industry.

The 15th Chengdu Motor Show in the capital city of Sichuan Province attracted 420 carmakers, parts-makers and dealers. Thirty exhibitors reserved showroom space larger than 1,000 square meters, a third bigger than last year. Of cars on display, 15 were national premieres and six were global debuts.

The show has grown from a backwater exhibition to one with international relevance as the auto market along the eastern seaboard shows signs of saturation, according to independent auto analyst Zhong Shi.

Mega-cities like Beijing and Guangzhou have already imposed car-purchase restrictions in an attempt to cope with streets choked by traffic and smog. Other coastal metropolises may not be far behind in regulating the explosion of car ownership.

During the past five years, car sales in eastern China have expanded 20 percent on average, trailing the 27 percent increase in the west, where vehicle penetration rates are lower.

Western China, which has trailed in the nation's economic development, has begun to flourish since the central government launched its Go-West Campaign in 2001, offering incentives and preferential policies for industrial investment in the region.

Many carmakers have built plants there. The municipality of Chongqing is now one of the two Chinese manufacturing bases for American auto giant Ford. And German powerhouse Volkswagen is building a new factory in Urumqi, the capital city of the Xinjiang Autonomous Region.

"With a booming economy and accumulating wealth comes higher demand for big-ticket durables like cars," said Ye Sheng, auto director at market research firm Ipsos. "Western provinces like Yunnan, Guizhou, Sichuan and Shaanxi are the hottest accelerators in the auto industry, as well as in per-capita gross domestic product and per-capita income."

Following figures

Carmakers have followed the figures. According to market research firm Sinotrust, the number of car dealerships in the regional economic hub of Chengdu almost doubled in three years to 415 by June. In western China this year, sales of more than 10 car brands have outstripped their nationwide pace.

It's a big market, with nearly one-third of China's population and two-thirds of its territory, the western region still accounts for only about 17 percent of car sales in the country.

"The size and shape of western China's car market is largely determined by how well the industrial transfer from east to west drives the local economy," said Zeng Zhiling, research director at market research firm LMC Automotive.

Nearly half of China's passenger car sales now come from inland regions, compared with 30 percent in 2005, he noted.

Chengdu is a prime example of a hinterland city turning into an economic powerhouse.

The capital city accounted for more than a third of first-half car sales this year in Sichuan, China's fourth most populous province. In July, the city's car volume exceeded 2.4 million units, second only to Beijing. Other notable inland areas with similar shopping power are Chongqing and Xi'an, the capital of Shaanxi Province.

"These cities are important for car brands not only because of sales," Ye said. "They represent many surrounding smaller cities with similar consumer preferences."

Many car brands have set up offices in western China to move closer to their consumer targets.

Mercedes-Benz, for example, set up an office in Chengdu last month, which is its fourth Chinese regional office.

Chengdu was once a city of mini cars like the Alto back in the 1990s. Now luxury is the new sexy.

Mercedes-Benz sales in Chengdu this year soared 60 percent by July, far outpacing the company's 10 percent nationwide growth. Its rival BMW will open a used-car center in Chengdu later this year to cash in on the rising trade-in demand.

Other players in China's premium car segment are also enhancing their presence there. Infiniti, the luxury division of Japanese carmaker Nissan, will open a flagship store in Chengdu by the end of this year.

"Underperformers in the east might well find fortune in the west, where consumers are not that sophisticated and brand-conscious," Zhong said. "As latecomers in western China, luxury car brands have their work cut out for them in building sales networks."

He said wealth disparity within the region is enormous. Car dealership locations, therefore, need to be chosen carefully and wisely, focusing on core cities of business clusters.

"Dealerships in Chengdu, for example, have many customers from its satellite city of Mianyang," said Ye. "Car brands can have a more flexible presence in this kind of small market, for example, by setting up mobile exhibitions to market their names."

Zeng struck a cautious note on the westward ambitions of luxury car brands, saying it might be too early for them to jump too quickly into that market.

"At present, up to 60 percent of luxury car sales in China come from the eastern coastal areas, where there is strong demand for vehicle upgrades," Zeng said. "The western part is still an entry-level market, with a lot of first-time buyers wanting economy models."

That's an ideal scenario for Chinese domestic carmakers, which mainly produce cheaper models.

The recent Chengdu Motor Show had a high participation rate from domestic brands.

"They need the western market more than ever," said Ye. "Their market share in China's car sales is dropping in the affluent east."

Cumulative passenger car sales through August among Chinese domestic brands rose 2 percent to 4 million units, lagging far behind the 8 percent increase of all brands. As a result, their market share fell 2.37 percentage points to 40.3 percent.

Their disadvantage may widen as traditional mid-to-upper range foreign players develop joint-venture brands targeting low-budget consumers. A study by market research firm J.D. Power shows Chinese car brands are no match for foreign carmakers in terms of prestige, design, and quality.

Joint-venture brands

Those joint-venture brands made a strong appearance at the Chengdu Motor Show. Baojun, a brand co-owned by SAIC, General Motors, and Wuling, launched a new variant of its Baojun 630 sedan, which carries a 1.8-liter Ecotec engine, one of the biggest horsepowers in its segment.

Zeng said Chinese brands need to localize their offerings for western China, making cheaper SUVs that suit the rugged terrain and appeal to buyers with lower disposable incomes.

Ye said the mid-to-upper range market there is also critical for domestic brands because the region's booming economy will eventually give rise to demand for vehicle upgrades. Two years ago, up to 60 percent of cars in Chengdu were in the A0 class. Today that proportion is down to 30 percent.

"Carmakers can see the past of eastern China reflected in today's western China," Ye said.

"To some extent, China's regional car markets are characterized more by income levels than by local preferences."