Big opportunity in smaller cities for auto companies

Automobile markets in China's third- and fourth-tier cities are showing strong momentum and the demand for vehicles there is expected to grow, boosting the country's auto industry, officials and insiders said.

"The demand from third- and fourth-tier cities will continue to grow, and with new environmental standards put into place, old car models will be driven out of the market at a faster speed. Therefore, we should remain optimistic about the automobile sector," said Xin Guobin, vice-minister of industry and information technology at a news conference in Beijing.

Most of the younger generation in the third- and fourth-tier cities, the main automobile consumers, have higher education backgrounds and are more open-minded. While not having to bear skyrocketing housing prices like those in first-and second-tier cities do, these young people have buying power, said Economic Daily on Jan 21.

Wonderful Capital - a capital consulting service provider holding the same views as the newspaper - released a report last year. It cited global market consultancy McKinsey & Company, which forecasts the proportion of Chinese middle class will increase to 81 percent by 2022. Meanwhile, the proportion of middle class in China's third- and fourth-tier cities will grow most rapidly to 40 percent by that year.

Compared with the white-collar workers in metropolises, the middle class in third- and fourth-tier cities have more disposable property and spending power, according to McKinsey & Company. Since housing, commodities and services prices in the lower-tier cities are relatively low and there is less work pressure and more leisure time, the middle class there generate a higher demand for superior products and brands.

Car sales growth in third- and fourth-tier cities has been higher than that of the first- and second-tier cities since 2008, claims Wonderful Capital. In addition, Economic Daily reported that people living in the lower-tier cities have more demands for automobiles like longer journeys, visiting relatives and friends as well as picking up and dropping off children at school.

The demand for cars in most of China's third- and fourth-tier cities is not being met, which offers a great opportunity for carmakers, according to Cui Dongshu, secretary-general at the China Passenger Car Association, reported by Economic Daily. Electric vehicle startup Sitech Dev is one of the carmakers that have found a new path to targeting markets in third- and fourth-tier cities and has launched brand-positioning and marketing campaigns.

Considering that the travel radius in the lower-tier cities is relatively fixed and no more than 50 kilometers in general, Sitech Dev released its first model DEV1, a compact electric vehicle with a peak power of 55 kilowatts and a 35-kilowatt-hour battery that allows the car to run up to 350 kilometers at one charge.

With 30 minutes of quick charge, the battery can provide power for 200 km of driving.

Priced at 61,900 to 77,900 yuan ($9,200 to $11,575), the DEV1 targets young customers in the third- and fourth-tier cities, according to news website Sohu. It says the startup has held new car launch events in more than 50 cities, including Zhengzhou, Weifang, Wuhan and Guiyang.

With the popularity of mobile devices, the information gap of the third- and fourth-tier cities is being filled. Therefore the customers there, especially younger ones, are willing to follow trends where emerging carmakers have superiority over traditional automakers, according to Sohu.