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Chinese automakers step up competition in emerging home market

(Xinhua)
Updated: 2009-12-25 10:56

Competition in China's rural auto market is fierce and manufacturers know they must build bridges to keep customers -- a task one firm is taking seriously.

To enhance its brand image, Jiangling, a major producer of commercial vehicles, invested 1 million yuan in building more than 20 small bridges to benefit rural motorists this year.

On Dec 5, the company completed its final work of 2009, the No 64 bridge in a village on the China-Vietnam border.

In the past three years, the company has donated 3 million yuan ($439,335.14) in the project, said Wu Jie, deputy general manager of the Jiangling Motors Sales Corporation.

"The project has helped us build a reputation across the country, especially in less developed central and western China," Wu said.

Jiangling, like other domestic auto manufacturers is in a desperate scramble to secure a share of China's emerging rural market.

Foreign and joint venture brands are also eying the field, described as a "gold mine" by Ding Lei, general manager of Shanghai General Motors.

Spoilt for choice

At year's end, Yang Zhenxi, a farmer who plans to buy a mini-bus to expand his woven bag business, is still to choose between a dozen domestically-made vehicles after months of shopping around.

Dealers are offering not only preferential prices, but also attentive after-sales services, Yang says. "My budget is just 40,000 yuan. I didn't expect to have so many options."

Local brands have a reputation for low price and low maintenance in Yang's home county of Shangrao in South China's Jiangxi province, with a population of 720,000 and per capita GDP of 7,500 yuan.

Yang is only one of many buyers who could benefit from the fierce competition among local brands to satisfy low-end demand in mid-size and small cities and in rural areas at the traditional peak season for Chinese auto market.

Rural expansion

From Januarary to November, China produced and sold more than 12.2 million cars, making it the world's largest auto market, the China Association of Automobile Manufacturers announced early this month.

But Chinese automakers have accelerated their advance into the fast-growing market.

Since March, Changhe Auto, a Jinagxi-based manufacturer of mini-vehicles, has offered a 10-percent discount on its two popular models, Freedom and Big Dipper.

Anhui-based Chery, another auto giant, began a two-month sales promotion nationwide since September, with a maximum of 20,000 yuan in price reductions, said Jin Yibo, assistant general manager of the company.

They do not compete on price alone. Changhe is planning to provide free technical advice and 24-hour maintenance services to consumers in 1,000 townships and 10,000 villages across the country in the next two years, said Chen Ping, its deputy manager-general.

This year, Chery launched its sub-brand, Karry, tailored to low-end demand, and it has set up more than 300 sales outlets in mid-sized and small cities, Jin said.

Local brands have begun reaping rewards. By December, Changhe had sold more than 150,000 vehicles, up 50 percent year-on-year, Chen said. "We have set a target of 200,000 next year, and 300,000 in 2011."

Fueling growth

In the first three quarters of 2009, the sales growth in China's provincial capitals and prefecture-level cities, known as second and third-tier cities, for the first time surpassed that in Beijing and Shanghai, said the State Information Center (SIC) early this month.

Beside ever-increasing purchasing power, the competition in such low-end markets is also fueled by government stimulus policies to promote small cars this year, including generous tax cuts and subsidies, Chen says.

Since January, China has halved its vehicle purchase tax to 5 percent on vehicles with a displacement of less than 1.6 liters. Eighty percent of Chery's products fall into this category.

Two months later, a mini-vehicle incentive program in rural areas enabled buyers to enjoy up to 5,000 yuan in government subsidies for a vehicle with a displacement of less than 1.3 liters, which accounts for 50 percent of Changhe's products.

Both policies, which are scheduled to expire on Dec 31, have been approved by the State Council for an extension through 2010. But the vehicle purchase tax will rise to 7.5 percent next year.

But the economical domestic-made vehicles could be much favored in such less wealthy markets, said Xu Changming, an official with the SIC.