Happy 2020! For those who managed a break and time with the family, we trust it was a good one. Our hearts go out to our Australian readers and those who have been impacted by the fires.
The start of the year has been accompanied by the usual slew of big China numbers and never-ending growth stories in China. Yet while ‘China’ and ‘growth’ have been synonymous with much of the last four decades, one rather large category just clocked its second year of contracting sales dragging down China’s overall growth story – the good old-fashioned automobile. Looking deeper into auto industry provides some interesting insights about selling in China that spans most other sectors.
Firstly, despite the 8% fall in overall car sales last year, demand from China’s young and affluent consumers is stronger than ever for luxury German brands. BMW, Mercedes-Benz and Audi all posted record China sales in 2019, up 13.1%, 6.2% and 4.1% respectively. Like in most categories in China, the premium end of market shows the most promise for budding brands.
Another interesting insight is the impact that the trade war is having on large, emotional purchases that project status and allegiances. While many lower-involvement American brands have been relatively unscathed by geopolitical tensions, the big American car brands haven’t fared so well: Ford’s sales dropped 26% last year (improving on the 37% decline in 2018) and GM fell 15%. Nonetheless, the new face of American auto – Tesla, is dancing. Sales grew 12.4% in the first 9-months of last year, and are expected to accelerate following the swift and relatively flawless opening of its $2 billion factory in Shanghai.
Whilst new car sales may have contracted, the overall number of private cars on the road has grown to 207 million. This reflects an increasingly willingness from Chinese consumers to buy pre-loved vehicles (among other things), which was almost unheard of as recently as five years ago. Almost 30 million more people got their driver’s license last year, with those licensed to drive now numbering 435 million. Although driver behaviour remains markedly different from other markets – i.e. we’re unlikely to see the proliferation of drive-thru services like in America, some brands that are assisted by car ownership will get a boost. Companies such as Costco are a good example, where consumers buy bulkier, larger products that would be difficult to carry on public transport and are often expensive to deliver. Licensed drivers are also likely to have an increasing impact on Chinese tourists taking self-driving holidays.
Although China’s growing middle class promises enormous potential, that growth won’t continue indefinitely. While the clichéd growth strategies can deliver sales, they don’t always live up to the hype. We only need to look at the affordable pastime of going to the cinema – lower tier cities had been held up as the driver of future growth yet tier-3 and lower cities’ share of box office dropped from 30% in 2017 to just 10% last year.
Slowing or even contracting growth isn’t bad news for everyone. Even in segments where the outlook isn’t so rosy, brands that connect and evolve with consumers can still experience healthy growth year after year, as the German auto brands can attest.
In short, the new decade continues to provide unparalleled opportunities in China. Yet brands will need to work harder and smarter than ever before. Blanket projections such as China’s enviable growth rates and the rise of lower tier cities wont apply for every category and will need to be tempered with deeper, more thoughtful and dynamic insights and strategies. China Skinny is here to assist, calling on our historic and future understanding of the market, coupled with our unique tools and methodologies. Go to Page 2 to see this week’s China news and highlights.