IN the “new normal” car industry, domestic manufacturers will have to step up their game. The old ploy of simply producing the cheapest cars on the road resulted in brand stigma and a less competitive stance.

Some domestic carmarkers are looking for help in upgrading products, which opens new opportunities for international parts and systems suppliers.

PRICE, greener cars loom in meeting competition

A new round of sales competition between General Motors and Volkswagen in the world’s biggest auto market kicked off last week, following a price-cut announcement made by Shanghai General Motors, General Motors’ joint venture in China.

The US-based carmaker cut prices on 40 models of Cadillac, Buick and Chevrolet on May 12. The price of Chevrolet Captiva sport-utility vehicle models dropped nearly 20 percent, while that of the Chevrolet Cruze sedan fell to 89,900 yuan (US$14,500), putting it within range of lowered-priced domestically-made models.

GM was chasing discounts offered on April 7 by the Shanghai Volkswagen. The joint venture slashed 10,000 yuan off the price of its Tourans and reduced the Polo sedan to a low of 75,900 yuan.

Matt Tsien, General Motors executive vice president and president of General Motors China, said that the price cuts means that consumers can buy higher quality vehicles at lower prices.

“Pricing has to be reasonable to consumers for us to compete in a fiercer China market,” Tsien said.

Discounting is a part of General Motors’ strategy in the scramble to maintain or increase market share in the car industry’s version of “new normal.”

Growth of China’s car sales is facing a downturn due to a cooling economy. UBS Securities said sales growth of passenger vehicles is expected to drop to 8.3 percent in 2015 from 12.6 percent last year.

Sales growth decelerated as April, with deliveries down about half a percent from a year earlier to about 2 million vehicles, according to the China Association of Automobile Manufacturers.

To remain as a significant player in the market, General Motors pushed out its “2020 Strategy,” calling for the company’s market share in China to rise to 10 percent, Chief Executive Officer Mary Barra said at a Shanghai Auto Show event last month.

The Detroit-based auto maker announced it will invest 100 billion yuan in China by 2020, based on development of 10 new models and annual localized production reaching 5 million units by 2018. That coincided with Volkswagen’s “2018 Strategy” released in March, with the same local production target of 5 million cars a year.

Responding to the industry slowdown, more models are in the pipeline over all segments at General Motors. The desires of targeted buyers are being addressed, especially the esoteric demands of motorists under the age of 35.

General Motors said it is hoping that its Buick and Chevrolet models will be million-unit sellers. At the same time, in the luxury car market, it plans to expand Cadillac models to include the plug-in hybrid CT6 launched at the auto show last month.

After Volkswagen announced it would introduce 20 eco-friendly models by 2018 and start producing them domestically beginning next year, General Motors was quick to respond.

It plans to earmark about a quarter of its planned 100 billion yuan investment to the green sector. Ten more new models will be launched and localized by 2020, all of them eligible for government subsidies, General Motors said.

“We expect our new energy cars to achieve mass production locally in the future, enhancing cost performance,” Dan Ammann, the company’s president, said at an auto show media conference.

Despite cooling sales, China is still valued as “very, very important” market and is expected to be the biggest global market for GM for a fifth year running, Barra said.

General Motors sold 939,203 units in the first quarter, surpassing Volkswagen’s 898,400 units, and GM held 13 percent of market in April. Analysts said General Motors might have an upper hand because of Volkswagen’s decelerating sales growth and some rising public criticism about its product quality.

Making cars more affordable may help lift sales

Volkswagen extended official price reductions from dealerships down to the buyer’s level in April, sending shock waves throughout the industry. With its biggest competitor General Motors now following suit, is a price war on?

Jochem Heizmann, president and CEO of Volkswagen Group China, discussed that question and other market trends with Shanghai Daily.

Q: Would you comment on Volkswagen’s performance in the first quarter?

A: Our 15 percent growth in the passenger car market in the first quarter surprised us. However, the figure for the whole year may come in below last year’s 12 percent growth. But we think the passenger car segment in China will grow faster than comparable passenger car markets elsewhere in the world.

We lagged behind the market average in China because of changes in production. Sagitar is in a transition phase, while Lamando has just been launched. Overall market growth in China was due mainly to segments where we were absent, like low-cost budget SUVs and multi-purpose vehicles.

In the segments we are in, we are still on our way to increase market share. It is business as usual.

Q: Do you think the wave of recent price cuts has set a pattern for the rest of the year?

A: Price reductions are quite a normal thing. Like in any other industry, you have to adapt to situations and be prepared to alter strategies.

Price is not the only issue here. We have to do more to explain to our customers the total cost of car ownership. You can’t look at just the sticker price. You have to compare the equipment on cars and consider variable costs like fuel consumption and residual value.

Q: Could you elaborate on that?

A: In other countries, the depreciation of a car’s value after two or three years has a big impact on the total cost of ownership. In other words, what can you sell it for when it become an older model.

If you cannot afford a new car in Europe, say, you look for a used car. How well the used car business can be developed in China will affect our budget car project.

Q: What are other issues you consider in tapping the Chinese market?

A: We have made a lot of efforts to build more fuel-efficient cars. The Golf GTI, to be locally produced in China, is 25 percent more fuel efficient than its predecessor.

We also have to consider the key drivers of growth in car sales in Tier 3 to Tier 5 cities and how they are different from top tier cities.

Cutting-edge technology to improve road safety

Hakan Samuelsson, president and CEO of Volvo Car Group, said he expects the Swedish brand to outpace growth in China’s premium car segment. He discussed the future with Shanghai Daily.

Q: Price reductions in the mid-to-lower segments of the industry are becoming part of the “new normal.” Will that trend spill over into the premium market as well?

A: As competition heightens, premium carmakers will have to deliver more attractive products. What premium car buyers look for from us is product upgrades and improvements. We are the only manufacturer that will replace all our current cars in the next four years. Our ambition is to sell 200,000 units in China by 2020. Last year, we achieved a very impressive 33 percent increase to over 80,000 units.

Q: Volvos strike consumers as classic and traditional. How do you carry on that heritage while keeping up with trends that appeal to younger consumers?

A: It is really a challenge for our brand. When people think of Volvo, they think of safety. This is something we can develop further, from seatbelts and airbags to auto-brake systems and autonomous driving. That involves a lot of cutting-edge technologies.

We really want to make a difference for China’s road safety. Traffic fatalities are still too high in this country.

Another point we are exploring is connectivity. It is about getting drivers plugged into their digital lives in a simple and intuitive way. The days of complicated buttons on the dashboard are gone.

Q: As a leading brand in autonomous driving development, when does Volvo think that revolutionary concept will come to reality?

A: If it’s about a car that doesn’t have a steering wheel and drives itself, it will remain in science fiction. But autopilot functions for certain driving conditions is something we will put into big field tests in 2017.

There will be 100 such cars with normal drivers running on the streets of the Swedish city of Gothenburg, where Volvo is based.

These cars could be commercially available in 2020. During the testing phase, Swedish authorities will be conducting research on legal framework related to such driving.

Q: The S60L plug-in hybrid is a latecomer in that segment of the market. How does Volvo plan to electrify the market?

A: We are the first premium carmaker to localize this technology in China. Our car will be made at our plant in Chengdu in Sichuan Province. We have confidence in it because it is the best-selling plug-in hybrid in Europe.

All our future vehicles will have this plug-in hybrid concept. This is where we will keep our focus for many years, and it best suits China’s new energy vehicle policy. It is more flexible and a safer form of alternative-drive vehicles than purely electric cars, which may leave you with an empty battery halfway to your destination.

The combined range of a S60L plug-in hybrid, which runs 50 kilometers in pure electric mode, can actually be up to 1,000 kilometers.

Latecomer to market to high-income motorists

Lincoln started sales on China’s mainland last year with an array of luxury brands targeted at wealthier consumers.

The brand opened eight dealerships last year, and it expects that number to reach 25 by the end of this year and 60 by the end of 2016.

At the Shanghai Auto Show, Lincoln introduced its luxury SUV models MKX and Navigator, which will be in showrooms this year, and a Continental concept car that will be available on the China market next year.

Shanghai Daily asked Robert Parker, Lincoln China president, about how the company views consumers here and how it plans to ramp up its presence as a newcomer in the market.

Q: How are Chinese consumers different from Western ones?

A: The most surprising thing to me is how many people are looking at their phones in China. It seems to be something that preoccupies everyone. I was at dinner the other day and all six people at the table were looking at their phones.

It is fascinating to know how much time consumers spend on either their mobile device or on a computer and social media to research a brand before they purchase. If you compare that with Europe or the US, the research by Chinese consumers are longer and much more comprehensive. They have pretty much made up their minds before they show up in dealerships.

Chinese consumers are more likely to seek advice from friends and families. We usually have consumers show up with the whole family, the three generations, in dealerships. I think using social media and creating a family experience is more important in China than in Western markets.

Also, in the US, three used cars are sold for every new car. Here three new cars or more are sold for every used car. The luxury business is very different because of that.

Q: Car sales in China are generally slowing. What’s your plan as a latecomer to the market?

A: Our priority is to open dealerships and offer consumer-centered services and experience. We are looking all over the country and mapping out 60 dealership plans for the end of 2016 to make sure we cover all consumers. We have a toll-free number and we find about 80 percent of customers are calling it to find a dealership. We can also tell many customers are calling from inland cities, for example Chongqing, so we know we need to build dealerships there. We are now primarily expanding in Tier 1 and 2 cities, but a lot of the growth is in smaller cities.

Lincoln is a new brand in China. Being the latest luxury brand in China may have its advantages.

Q: Any plans to localize production?

A: We are always looking at opportunities of local production, but at this point we don’t have a plan yet.

Making cars greener, smarter, more connected