More than 400 carmakers, parts-makers and dealerships are present as the show opens today in a sign of the reorientation of the industry to the country’s interior, which holds the promise of high growth with a low vehicle penetration rate of 30 to 50 per 1,000 people. GAC Honda plans to locate most of its 200 new dealerships this year in the region, and premium automakers like Mercedes-Benz and BMW are dedicating lots of resources to the area.
If you want a quick lesson in the new geography of China’s auto industry, then you should come to Chengdu to see western China’s biggest auto show this year, which opens today.
With more than 400 carmakers, parts-makers and dealerships gathering at the New International Convention & Exposition Center in Chengdu Century City, the show is occupying a record showroom space of 140,000 square meters. The 16th Chengdu Motor Show is readying for more than 600,000 visitors in 10 days as it encapsulates the whole auto industry’s “Westward, ho!” movement.
“Thanks to continuous urbanization and the overall improved living standard of Chinese people … the major demand for passenger cars is being transferred from coastal areas to central and western China and to lower-tier cities,” said Dong Yang, secretary-general of the China Association of Automobile Manufacturers, in the latest white paper on the future of China’s auto market. It’s a trend that car brands cannot wait to follow.
After a decade-long explosion of car ownership in China, their established markets along the eastern coasts are approaching vehicle saturation points amid all the smog and traffic chaos while the western region still holds the promise of high growth with a low vehicle penetration rate of 30 to 50 per 1,000 people.
By the reckoning of China Automobile Dealers Association, the car sales network in western China grew 16 percent in the past five years, outpacing the 11 percent increase in the east.
The Chengdu Motor Show, as a prelude to China’s peak car shopping season in autumn, has become a must-win battle for many car brands considering the trend-setting role played by Chengdu in regional consumer preferences.
As a frontier of western China’s economic development, the capital city of Sichuan Province created one of the earliest vehicle booms in the region in the 1990s. A snapshot of Chengdu’s streets at the time would have captured entry-level shoppers riding motorcycles, middle-range buyers driving Alto micro cars, and upper-end consumers driving Honda Accord sedans.
Despite the surging choices of car models, the classic “three-box” spacious sedans like Accord are still very much preferred in western China for their practicality and durability as lower-tier cities follow Chengdu closely when moving up the consumption chain.
The ninth generation of the car is expected to make its national debut at the Chengdu Motor Show. And its producer, GAC Honda, having set up its third business center in Chengdu in 2007, is now geared up to make further inroads in middle-western China with plans to locate most of its 200 new dealerships this year in the region.
Chengdu is also going through a wave of vehicle consumption upgrades as its economy goes from strength to strength. Once known as an “Alto city,” overflowing with mini cars, it has been transformed into a top five-ranking powerhouse of luxury car sales just like Beijing, Shanghai and Guangzhou. Among the seven car brands using exhibition space as large as 2,000 square meters at the Chengdu Motor Show, four sell premium models. They include Mercedes-Benz and BMW, the first in the segment to set up regional offices in the city to stay closer to their emerging consumers.
That appears to be just the beginning of their plans to sink deep roots in the city. In April, Mercedes-Benz opened its biggest training center outside Germany in Chengdu, which is its third such center in the western region, and now has half of the brand’s training resources in China. Liu Yunliang, head of Mercedes-Benz’s operations in western China, said the new training center reinforces the company’s commitment to services, quality and professionalism at dealerships in China.
By 2014, Mercedes-Benz will have doubled the number of its dealerships in western China compared with its total of 27 at the end of last year.
Chengdu is not only where more than 65 percent of luxury car sales in Sichuan Province comes from, but also where experiments to test new business ideas for the region often start. BMW chose the city to explore its Premium Selection used car business in Western China. And in June, it brought its idea of “5S dealerships” to the region, setting up a store in Chengdu that has sustainability added as the fifth “S” to the traditional idea of 4S (sales, services, spare parts and survey) for car retailing.
Zhan Fei, head of BMW’s operations in western China, said Chengdu is a location of strategic significance on the company’s China map. “As the economic and transportation hub of China’s southern west and northern west, as well as an important tourist city, Chengdu has a huge scope of influence,” he told local media earlier this year.
Having secured its leadership in western China’s auto market, Chengdu aims much higher. By 2020, the city expects to achieve 250 billion yuan worth of vehicle sales, which could transform it into a tier-one automobile city in the country in terms of related business scale.
These ambitious goals are set based on the fact that the city’s auto manufacturing industry is now well on track to become capable of producing 1.25 million vehicles annually by 2020 as planned. Boasting efficient services, an amiable business culture, easy logistics and relatively lower labor costs, Chengdu is now a manufacturing base for numerous international big names such as Volkswagen, Toyota, Volvo, Bosch and Harman.
Having been quick to follow China’s industrial migration from the coast, they now find themselves in a favorable proximity to one of China’s high-growth markets for cars. At the Chengdu Motor Show they may enjoy somewhat of a home-field advantage like back home.