In our automotive geography series, we took a look at countries and the cars they produced. One country we didn’t look at was China. China does produce several of its own brands of vehicle, but the truth is China has become increasingly important for non-Chinese automakers. Big domestic brands and larger brands from around the world are banking on China for long term success.
A large portion of Chinese automakers are joint-ventures. This means that while China has their own brands, they often team up with an existing, more well-known brand in order to save on the overall cost of developing a vehicle. Manufacturers like Beijing Automotive Group, Brilliance Automotive, BYD, Dongfeng Motor, FAW Group, SAIC Motor, Chang’an, Geely, Chery, Jianghuai, Great Wall, and Guangzhou Automobile Group all produce their own vehicles for the Chinese market. More familiar auto makers like Volkswagen and GM produce join-venture vehicles for sale in the Chinese market. The big deal doesn’t come from Chinese domestic vehicles, or even joint-ventures, but from domestic brands selling their regular branded vehicles in China.
China’s auto market has long been forecasted as the promised land for automakers. An emerging economy of millionaires with an appetite for western luxury meant that big SUVs and other products could be brought there with little competition and sell fast. While China’s vehicle production and consumption is expected to multiply ten times over by 2020, some initial estimates have already begun scaling back the expected growth of the Chinese market. So where does that leave current automakers?
We all drool over vehicles like the Lamborghini Huracan and the Audi R8. The reality is that those vehicles on their own wouldn’t be enough to keep a single company afloat. Volkswagen Auto Group, owners of the Lamborghini and Audi brands, sell millions of Golfs and Jetta’s to help finance the large production costs of a 700hp supercar. The same goes for most other automakers. The specialty performance options don’t sell in large volumes, so their costs are offset in part by larger volume sellers. For the last number of years, the largest volume seller in vehicles has been the SUV, so much so that companies like Lamborghini and Lotus are developing their own, with examples already being shown by companies like Bentley. What better place to bring your ace-in-the-hole newly minted SUV than to an emerging market of millionaires’ right?
With initial estimates being off for just how much of a cash cow the Chinese market is, large automakers could be in danger of overdeveloping for an underdeveloped market. Specialty brands like Lotus could end up disappearing if the big gamble on China doesn’t pay off.
Ford has been reported to be spending nearly 5 billion dollars to develop their Chinese markets. The recently unveiled Lincoln Continental revival was expected to see a very successful Chinese release. While Ford hasn’t said much else about the Lincoln Continental since unveiling the concept, with major forecast re-adjustments occurring at Volkswagen and other domestic joint ventures, we could see the Continental further delayed.
Ford is avoiding completely popping with the Chinese vehicle bubble by doing something many automakers have been avoiding for years, bringing back traditional performance vehicles to North American customers. The vehicle market in the last decade has been dominated by trucks and SUVs here in North America. While we slowly shift to smaller vehicles in the name of fuel economy, we desire something that we still find exciting. Companies like Ford are bringing high performance vehicles that have been available in Europe and other markets for years to us in North America. Honda and Volkswagen are also testing the waters on their high performance options.
This strategy is important because automakers are slowly realizing that China isn’t a developing auto market ripe for the picking, but that it’s a developed market that needs to be approached with strategy. This forces automakers to put more focus on developing a plan (such as Fords high performance, trickle down technology) rather than making a quick and easy sale overseas. Companies like Lotus have even begun talks of upping their North American presence.
For us customers in North America, the best case scenario is that China develops fast and automakers stop seeing it as a quick buck. This would also mean that a more developed China is capable of producing a high quality of domestic vehicle. Current Chinese domestic vehicles lack the quality of other markets, but they are rapidly approaching an impressive level of performance. If automakers are smart, the next few years may be one of the most exciting times in history to be passionate about cars, as an entire country may spring up with legitimate options and models.
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