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As I detailed in my articles China: return to explosive growth expected and China: How local brands may finally find their mojo at home, sales growth is here to stay in China and will mainly come from the less developed regions of the country located in the hinterland. So I thought it was time to learn a little more about these regions where the bulk of new vehicles will be bought over the next decade. Autonews says China’s light-vehicle market will reach 30 million units in 2020, up from 19.1 million last year and larger than the 2012 US and European markets combined!
Autonews adds that by 2020, western China’s share of total sales is expected to rise to 26%, up from 18% in 2011, according to predictions from IHS Automotive. The coastal region’s market share will drop from 60% to 43%. So we are not looking at a complete shift, but this evolution seems irreversible. And this is where I need to introduce you to the concept of Tier cities. In China, cities of over 1 million inhabitants have been classified into 4 Tiers based on their population and wealth. There are no strict definitions but to simplify, see below IHS Automotive’s definitions:
|Population||Per-capita income range||Examples|
|Tier 1||more than 10 million||$11,300-$14,600||Beijing, Shanghai, Guangzhou|
|Tier 2||4-10 million||$6,500-$13,000||Chengdu, Nanjing, Hangzhou|
|Tier 3||2.5-6 million||$4,900-$11,300||Xian, Wenzhou, Suzhou|
|Tier 4||1-4 million||$1,600-$6,500||Urumqi, Lanzhou, Xining|
|Source: IHS Automotive, Autonews|
The bulk of the Chinese car market has resided up until now in Tier 1 and 2 cities. As a result, in Tier 1 cities there are 128 vehicles per 1,000 residents. This ratio falls to 54 in Tier 3 cities and 28 in Tier 4 cities. The hinterland market is now seen as ripe… “A Tier 3 city today grows into a Tier 2 city tomorrow,” Jeep President Mike Manley told reporters at the Shanghai autoshow. “And real estate becomes increasingly hard to get. So you try to get ahead of the curve.”
Chongqing, a city of 5 million inhabitants located 1,500 km west of Shanghai, is at the convergence of rail lines and highways in central China and Ford has started the construction of both an engine and a transmission plant there, for which the local government literally removed a small mountain from the landscape…
Volkswagen already has an assembly plant in the western city of Chengdu, which also is home to a plant run by Toyota and FAW. This year VW will add a plant in Urumqi, 2,500 km west of Beijing but only 500 km Southwest of Mongolia. Soh Weiming, VW China’s executive vice president of sales and marketing, called Tier 3 and 4 cities the automaker’s “bread and butter.”
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Chrysler Group, Volvo, Nissan and Suzuki are all building plants in western cities. Automakers are also adding dealerships in the region and in the Tier 2-5 cities that dominate China’s interior, at a breakneck pace… “In the interior cities you have more first-time buyers,” says IHS analyst Namrita Chow. “And you can influence these buyers because they have less brand awareness.”
SAIC-GM-Wuling plans to have 1,100 dealerships in western China in 2017, up from 800 today. Now Shanghai GM is starting to sell Buicks and Chevrolets in the area. “By 2017 we plan to have 1,700 dealerships in western China, compared to about 1,000 today,” Socia said. Nationwide, GM expects to have 5,100 dealerships in China by 2015, up from 3,800 at the end of last year.
Audi will add one dealership per week until it has 500 stores, up from 300 at the end of last year, said Luca de Meo, Audi’s board member in charge of marketing and sales. “We are still not active in half of China’s 363 cities with over 1 million inhabitants,” de Meo told Automotive News in Shanghai. BMW also is eyeing the smaller cities in the interior. “We want to increase our competiveness in the Tier 1, 2 and 3 cities and enter into the Tier 4 and 5 cities,” said Karsten Engel, CEO BMW Group Region China.