Entry-level cars gaining in popularity
January 16, 2017 Category Automotive, Weekly
Industrial insiders predict substantial falls in profits for automobile manufacturers in the Chinese market in the near future, as car buyers born in the 1990s lead a shift toward entry-level vehicles. They observed that the average age of first-time, new car buyers is dropping, causing cheaper, entry-level products to gain in popularity. This could lead to fierce rivalry among automakers in the low-price segment, driving down profitability. According to German firm Roland Berger Strategy Consultants, the majority of carmakers in China could face a scenario in which average product prices slide while costs will be hard to reduce. “There won’t be a big differentiation between brands, so international brands will struggle to maintain their already narrowed pricing premium. They will have to join the race with local brands in the future, by lowering their prices”, said Zheng Yun, Principal of the automotive practice at Roland Berger. “Looking back, those cars now priced at CNY120,000 used to cost from CNY150,000 to CNY160,000,” he added. Recent research from Nielsen China forecast that passenger cars priced from CNY50,000 to CNY120,000 would be the mainstream in the Chinese market by 2020 and represent a 69% market share by volumes. “The generation born in the 1980s often perceive cars carrying international brands as higher-price with better quality, in contrast to the low-price, poor-quality Chinese brand cars. But those born in the 1990s have a higher acceptance of Chinese brands. They are seeking value for money, at a time when local brands are rising in quality,” Zheng said.
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