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Strategy: How can Chinese brands unlock their home market? (Part 4)

Beijing Auto Weiwang M20. Picture courtesy of chooseauto.com.cnChinese carmakers are starting to make big waves in the MPV segment (Beijing Auto Weiwang M20)

NOW UPDATED with MPV analysis.

This is Part 4 of my special Strategy series about Chinese manufacturers at home. Check out Part 1 (introduction and Medium & Heavy Trucks)Part 2 (Small, Medium & Large Buses and Light Trucks) and Part 3 (Pick-ups, Mini Trucks and Minivans). We are exploring the Chinese market segment by segment and studying how local brands fare in each segment and every Commercial Vehicle segment has now been covered. Far from having to try ‘unlock’ these segments, Chinese manufacturers actually hold an almost unbreakable monopoly on local production and sales of Commercial vehicles.

Chana Taurus. Picture courtesy of auto.sohu.comChana Taurus. Chinese manufacturers monopolise all Commercial Vehicle segments at home…

The relative weakness of Chinese carmakers at home has often been pointed at as a factor that could potentially hamper their progression overseas, but the Commercial Vehicle sector in China actually behaves a lot like the Passenger Car sector in Japan and South Korea before their worldwide expansion. The Chinese are buying Chinese trucks of all size, buses, minivans and pickups and their strength at home is an invaluable base for progress in export markets. Neighbouring countries such as Mongolia and Vietnam already buy a majority of Chinese medium and heavy trucks, and the situation is likely to be similar in a lot of developing countries, except I can’t report it here because sales data is unavailable.

SegmentTotal ProdChinese
Medium & Heavy Trucks1,044,61997%
Medium & Large Buses175,26697%
Small Buses389,963100%
Light Trucks1,894,99399%
Mini Trucks527,232100%
Minivans1,634,922100%
TOTAL5,666,99599%

Before we go into the Passenger Car segments in China let’s first take stock of the outstanding domination of Chinese manufacturers at home in all Commercial Vehicle segments. Keep in mind these are mainly production figures with a tiny part of it being exported, however imports are also minimal in these segments so it is a good summary of sales as well. Out of a 22 million vehicle-strong total market in 2013, Chinese manufacturers secure 5.6 million thanks to their near-monopoly of Commercial Vehicles. It also means that their share of the 16 million remaining Passenger Cars sold in the country last year is roughly 20%… Now that’s when we can talk about ‘unlocking their home market’ as per the title subject of this Strategy series…

Wuling Hongguang China 2013. Picture courtesy of nextcar.comThe Wuling Hongguang is responsible for the MPV sales explosion in China.

MPV

This is a key category in the Chinese market and one that will potentially make a lot of difference for Chinese manufacturers. I will go as far as saying MPVs are capital for Chinese brands to unlock their home market. In an overall market up 12% so far in 2014, MPV sales are up a gigantic 45% to 612,544 units in 4 months, that an impressive 1.8 million annual units rate. But even more tellingly, Chinese MPVs are up 51%, going from 85.7% to 89% market share. A testimony to its relatively late blooming, the MPV segment is still a little vague in China, with the Wuling Hongguang counted as a Commercial Vehicle by Chooseauto up until one year ago.

ChangAn Honor China March 2014. Picture courtesy of bitauto.comThe Chana Honor is the 2nd best-selling MPV in China.

The Wuling Hongguang is indeed responsible for the explosion of MPV sales in China, currently holding a 44% market share in the category. Along with Dongfeng and Chana, Wuling basically created the ‘affordable MPV’ category in China. My trip there unveiled the fact that affordable MPV are an upgrade for Minivans owners and the explanation for the Minivan plateauing we spoke about in the last Part of this Strategy series. At 1.8 million predicted units this year, MPVs should overcome Minivans for the first time in China.

1. Dongfeng FengguangDongfeng Fengguang in Kuqa, Xinjiang Uyghur – May 2014

The Wuling Hongguang is no less than the most popular vehicle in China outright nowadays, and its success relies on an incredible penetration rate in countryside and remote areas. When I travelled on the Karakoram Highway near the border with Pakistan, the Hongguang was simply the only new vehicle around. The Chana Honor, #2 most popular MPV in the country, sold over 20,000 monthly units for the very first time last March. This success has already spawned a few lightly disguised clones: the Dongfeng Fengguang, particularly popular in Kuqa in Xinjiang Uyghur, has already sold 23,000 units so far in 2014 while the Beijing Auto Weiwang M20 is just below at 22,300 sales.

Baojun 730Baojun 730 at the Beijing Auto Show last month

And the Chinese domination in the segment is set to continue: Baojun unveiled the 730 at the Beijing Auto Show whereas foreign manufacturers have yet to respond to the exploding demand for this kind of vehicles. The Top 5 foreign MPVs all behave worse than the market: the Buick GL8 is up 36%, the VW Touran down 7%, the Nissan NV200 up 38%, Toyota E’Z Yizhi up 15% and the Honda Odyssey down a horrendous 55%. As you can notice, none of them can be qualified as ‘affordable’…

Next stop: SUVs, so stay tuned!

Full China 4 months 2014 Top 33 All-SUV Ranking Table below.

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