If cars were smaller, traffic would move

By John Gong  |   2008-7-4  |     NEWSPAPER EDITION

ACCORDING to the China Association of Automobile Manufacturers, vehicle sales this year is expected to grow by 15 percent to hit 10 million units.

In the first five months, over 4.3 million vehicles were sold. At this pace, my calculation indicates that China is on track to become the world's largest automobile market within four years, surpassing the 17 million annual sales units in the United States last year.

Although automobile prices have been on a relentless downward trend for several years amid intense competition, auto business in China by and large is a fairly profitable growth industry.

However, for China's domestic auto manufacturers, the picture is not all that sanguine.

Auto manufacturers in China can be classified into two camps.

The joint venture (JV) brands are those mature and popular car models introduced to the China market by global giants but manufactured locally by their JV partners using a combination of local and imported parts and components.

These major players in China include GM and Ford in the US, VW and PSA in Europe, and Toyota, Honda, Nissan, and Suzuki in Japan.

Domestic companies including Chery, Geely, BYD and Huachen sell car models using domestically developed technologies owning their own intellectual property rights.

Currently the JV brands hold the lion's share of the market, leaving domestic companies with less than 10 percent of market share.

Domestic companies are mostly active in the low-end, less profitable A00 and A0 market segments (passenger cars can be classified into A00, A0, A, B segments based on the wheelbase size).

As the JVs start to introduce low-end A0 models as well, such as Toyota's Yaris and Honda's Fit and City, domestic companies are increasingly under competitive pressure.

An often touted strategy for domestic companies is the concept of a national car inspired by the success of VW Beatle and Ford's Model T.