April 18, 2014 7:00 pm JST

Next big battle in China auto market is over 50,000-yuan cars

KEN KUWAHARA, Nikkei staff writer

BYD unveiled its latest F3 model on March 25. Its listed price starts at 49,900 yuan, but actual sales prices often come in below 40,000 yuan at dealerships.

GUANGZHOU, China -- Competition is heating up in China's market for low-end cars. And both Chinese and foreign carmakers are racing to expand lineups.

     These cars are mostly entry-level vehicles priced at around 50,000 yuan ($8,033).

     More than 20 million vehicles are sold annually in China, making it the world's largest car market. This is expected to reach 30 million by 2020. Sales of high-end cars remain strong in China, but the market for low-priced cars is expanding at break-neck speed.

     This is a boon to Chinese makers like BYD Auto. One BYD dealer in a mountainous community in Guangdong Province, for instance, is doing very well thanks to sales of the F3 sedan. The dealer received 30 preorders in just two weeks for the new F3 model after it was unveiled on March 25. Preorders, which are made with a 10,000-yuan advance payment, continue to flow in.

     The F3 was the best-selling sedan in China by unit sales in 2009 and 2010. BYD only entered the car business in 2003, but thanks to the success of the F3, it is now one of the big players in China's auto market.

     The list price for a new F3 starts at 49,900 yuan, but actual sales prices often come in below 40,000 yuan at dealerships. According to a sales clerk at the dealership in Guangdong, the high name recognition of both the maker and the car ensures massive production volume, making it possible to sell the car at such competitive prices.

     Much of this aggressive pricing by Chinese automakers has been made possible by cost-cutting efforts at Chinese parts suppliers.

     Zhaoqing Junhong Industrial, a tire maker, for instance, has increased the content of low-priced synthesized rubber in its products and simplified tread designs as much as possible without violating safety standards. Guangdong Weijie Polar Lights Car Lamps lowered its supply prices by 20% over three years by changing materials suppliers and reducing wasteful use of materials in its production processes.

Pioneering thrift

Major Chinese cities are starting to cap the number of license plates issued for new cars as a way to deal with pollution and traffic jams. Such measures were first adopted by Shanghai and Beijing, and are now common in large coastal cities, including Guangzhou in Guangdong Province, Tianjin, and Hangzhou in Zhejiang Province. These restrictions are pushing carmakers to turn to less affluent consumers in inland areas. 

     Incomes are rising in China's cities, but not so much in rural areas. Per-capita gross domestic product in Beijing and Shanghai is around 90,000 yuan per year. For inland provinces and regions, this figure is commonly way below 30,000 yuan. The price of mainstay models by Japanese carmakers, for instance, are typically above 100,000 yuan in inland markets.

     But the strong growth potential of inland markets looks to be changing the strategies of foreign carmakers. 

     General Motors' local unit is offering the Chevrolet Sail, a subcompact developed just for the Chinese market, for a list price below 60,000 yuan, with actual sales prices lower than 50,000 yuan. More than 270,000 Sails were sold in 2012 and again in 2013, making it the second and fourth best-selling sedan in China, respectively.

     A Chevrolet sales representative in Guangdong Province says GM is not seeking profits with its Sail sales. The U.S. auto giant regards the Sail as a tool to increase first-time GM buyers, who will hopefully become loyal customers who will eventually upgrade to higher-end offerings like the Cruze, which starts above 100,000 yuan, and the Malibu, which is priced over 160,000 yuan.

All aboard

Nissan Motor's joint venture with a Chinese automaker, Dongfeng Nissan Passenger Vehicle, is also trying to edge into the low-end car market. When it unveiled the new model of Nissan's X-Trail sport utility vehicle in February in Chengdu, Dongfeng Nissan Vice President Ren Yong announced a plan to roll out a new car in the 50,000-yuan price range by the end of the year. Ren's announcement drew even more media attention than the new X-Trail did.

     It was effectively Nissan's declaration that it was joining the 50,000-yuan car market. The company's mainstay sedans in China are the Sylphy and the Teana, which both are priced above 100,000 yuan. Nissan's first 50,000-yuan car will be part of its China-only brand, Venucia, according to a Dongfeng Nissan executive. The company plans to unveil the car at the Beijing International Automobile Exhibition Show next week, with a market launch in the middle of this year.

     Venucia cars have been priced above 60,000 yuan, but Nissan is hoping to bring this under the 50,000-yuan level for the new car by purchasing more parts from local suppliers.

     Volkswagen, the largest player in the Chinese car market, is also planning to launch a 50,000 yuan model sometime in 2015. Toyota Motor, meanwhile, rolled out new Vios and Yaris models priced below 70,000 yuan last autumn.