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SUVs to lure Chinese buyers as demand for bigger space grows
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THOUGH China’s passenger sales may continue last year’s slower growth, the outlook for 2015 is not without some bright spots for the industry.
In 2014, total deliveries of sedans, sports utility vehicles, multi-purpose vehicles and crossovers in China posted a 9 percent increase to 19.7 million units, according to the China Association of Automobile Manufacturers.
That means the passenger-vehicle segment outperformed the overall auto market by 3 percentage points but still fell 5.5 percentage points short of its 2013 gains. Weaker sales have been blamed on slower economic growth filtering through to consumer demand.
Taking a cautious stance on the outlook for 2015, UBS Securities Asia projects mere 6 percent growth in China’s passenger car market but it points to a few factors that might still manage to cheer up carmakers.
Two significant events that could affect car purchases occurred in the past two months.
The large southern metropolis of Shenzhen joined several other Chinese cities in the fight to reduce smog and traffic overload by imposing restrictions on car purchases. The abrupt move could fan fears that similar limits are on the horizon in more Chinese cities. Such anticipation means many people may move up vehicle purchases to the start of the year to beat any clampdown.
The other significant factor was the long-awaited return of the bulls in China’s stock market. That has buoyed public confidence and put extra money in many pockets.
In fact, the strong stock market momentum may play an even greater role in consumer decisions about car purchase than the drop in pump prices triggered by the global plunge in crude oil, said Hou Yankun, head of China equity and Asian auto research at UBS.
Hou said he expects SUVs to follow a steady upward track for the next three years, following from 18 percent growth in 2014.
That does not directly relate to fuel consumption concerns because “China’s SUVs, in general, are not gas guzzlers,” he said.
By UBS’ reckoning, SUVs with off-road capabilities account for only 2 percent of car sales in China, whereas most are just for urban dwellers looking for bigger space for their families. “Basically, every would-be sedan buyer is being lured with a matching sedan-based bigger vehicle in the SUV segment,” Hou said.
The SUV boom is driven partly by replacement demand. That is also the case in the premium car segment, where 2014 sales grew 15 percent, slower than for SUVs. However, the premium segment may be able to sustain its momentum longer than SUVs do.
According to UBS, up to 45 percent of vehicle consumers in China are second-car buyers, and their purchasing power is more likely to be enhanced by car financing services, which have a penetration rate of up to 30 percent in the premium segment, compared with the 15 percent average for mass-market car models.
Meanwhile, premium cars comprise just 10 percent of China’s passenger car sales, lagging market shares of up to 20 percent in more developed markets.
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