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Market Insight: China looks overseas

China town: Chery's J1 light car is the latest in a wave of new cars from China.

Chinese auto-makers to look to Australia as domestic sales growth slows

Market Insight logo26 Apr 2011

THE explosive growth of China’s immature auto industry has been well documented in these pages, and Market Insight has also covered the outstanding local success of Australia’s first Chinese passenger car brand, Great Wall Motors.

Of course, it is too early to draw any conclusive long-term trends from less than two years of Great Wall ute and SUV sales, but it is worth revisiting Australia’s Chinese vehicle boom a month after the release of our third Chinese brand, Chery.

Last month, when Chery released its inaugural J1 city-car and J11 compact SUV models, sales of Chinese passenger cars surged to a record 756 – almost triple the initial 274 figure recorded in July 2009, when Great Wall’s two cut-price dual-cabs first shook up the bottom end of the ute segment.

Great Wall sales have grown consistently in between, spiking to 375 in November 2009, when Australia’s first Chinese SUV (the X240) arrived, and – with the help of single-cab and cab-chassis V240 ute models released from mid-year – totalling 6690 in the fledgling brand’s first full year of sales in 2010.

That was enough to put Great Wall firmly in the top 20 vehicle brands in Australia, ahead of established marques including Alfa Romeo, Aston Martin, Bentley, Chrysler, Citroen, Dodge, Ferrari, Fiat, Hummer, Isuzu Ute, Jaguar, Jeep, Lamborghini, Land Rover, Lexus, Lotus, Maserati, Maybach, Mini, Morgan, Peugeot, Porsche, Proton, Renault, Rolls-Royce, Saab, Skoda, Smart, SsangYong and Volvo.

128 center imageFrom top: Geely CE, Great Wall V240 and Chery J11.

It also put China just outside the top 10 in the list of imported brands in its first year, behind Japan, Thailand, Korea, Germany, South Africa, England, USA, Spain, France and Belgium, but ahead of Brazil, Czech Republic, Hungary, Indonesia, Italy, Malaysia, Mexico, Poland, Portugal, Slovak Republic, Sweden, Taiwan and Turkey.

With the aid of Geely, which launched its MK light-car in West Australia in January, and Chery’s small-car duo, Chinese vehicle sales are up 35 per cent to March this year, when Great Wall notched up its 10,000th sale.

At its official local launch in late February, Chery said it plans to sell 5000 vehicles in Australia in 2011 – a year in which its (and Great Wall’s) Australian distributor, Ateco Automotive, expects to sell a further 10,000 Great Wall vehicles.

To get there, Great Wall will introduce its first passenger car in Australia later this year and could also release a fourth model, while Chery’s first direct rival for Toyota’s top-selling Corolla, the J3 hatch, will go on sale early in the third quarter.

However, Ateco’s potential combined tally of 15,000 Chinese vehicles sales this year, which would put China among the top five countries of origin in terms of Australian imports, does not include the third unnamed Chinese brand – or the first Chinese EV – it promised to introduce here in 2011.

Nor does it include the rise of Geely, which plans to release a replacement for the MK in the five-door 1.3-litre CE hatchback, as well as the smaller LC (Panda) city-car and the larger EC7 small sedan and hatch via a network of Geely showrooms across Australia within 2011.

While Ateco remains coy about its Chinese vehicle sales targets, owner and governing director Neville Crichton said in February last year that by 2015 he expected Chinese vehicles to account for a “major, major” share of the Australian market, in which they would undermine sales of both Korean and Japanese vehicles.

“Hyundai has a big slice of the market,” he said at the time. “We’re not trying to take it off them – we just want some of it.

“I have no doubt that in five years the Chinese will have a major, major share of the (Australian) market. They’re the biggest manufacturer in the world. It’s no different to what the Japanese and then the Koreans did.

“I don’t see the Koreans disappearing. In fact, the Chinese will affect Japanese imports more than the Koreans because of their price competitiveness. We see a very big future …” While the independent auto giant looks to substitute the Kia vehicle sales it lost when the Korean car-maker assumed control of the brand here in March 2006, Chinese car-makers are increasingly looking to export markets in order to continue increasing production while the Chinese market’s own growth rate slows.

Chery is already China’s largest passenger vehicle exporter and has described Australia as a “touchstone” of symbolic importance in its plan to export to other developed Western markets including North America and Europe.

“Industry insiders forecast that the growth of the Chinese auto market will slow down significantly in 2011 due to changes in policies and the market environment,” said Chery when it announced its internationalisation business strategy in February.

“The huge overseas market will create the greatest opportunities for Chinese auto-makers this year.” Similarly, Great Wall has said exports may account for 30 per cent of its sales by 2015, and SAIC Motor Corp, the local partner of China’s two largest foreign car-makers, GM and Volkswagen, is aiming for six million annual deliveries by 2015 (up from 3.6 million last year), 800,000 of which are forecast to be sold in other countries.

Foton, Higer and JAC are in various stages of planning vehicle launches in Australia and, according to Fairfax, Haima Auto is the latest Chinese brand to reveal an attack on the Australian market – by late 2013 – while another, Hawtai, is even considering local assembly as part of its plan to sell cars here.

Despite slower overall growth of ‘just’ 10 to 12 per cent this year, some analysts predict strong underlying demand will continue to push China’s domestic market beyond 40 million vehicles by 2020, aided by the hundreds of new production and concept cars revealed in Shanghai last week.

GM announced in Shanghai that it would introduce about 60 new or upgraded models in order to double its vehicle sales in China (its largest market) to five million a year by 2015 – the same target announced by the Chinese partner of Nissan and Honda, Dongfeng Motor Group Co.

If the analysts are correct, 20 million passenger cars will be sold in China this year and China’s 2020 market will be more than double the size of the 2015 North American market, which some expect to grow to 17 million units – provided fuel prices do not continue to spike significantly above the nation’s already-record levels of $US4 per gallon.

While domestic China's relatively strong industry growth continues to be driven by indigenous and foreign giants, it appears the exports drives of smaller local makers like Chery and Great Wall to nations like Australia will gain even greater pace.

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