Down the food chain, buyers of family-friendly cars are upgrading. Demand for SUVs, crossovers and sedans remains depressed but is shifting toward higher-end, in-between cars, according to analysts at Goldman Sachs Group Inc.
Buyers of these so-called multi-purpose vehicles, or MPVs, have long bought the same few basic models, priced between 40,000 yuan ($5,800) to less than 100,000 yuan. As the market was flooded with SUVs, aspirational buyers stayed away. Now, manufacturers are improving design and comfort, and raising prices.
A slew of MPV models will be released this year. Going by low discounts compared to the rest of the market, demand remains sturdy. Goldman’s analysts estimate that in every 1 percent of demand that moves to the higher-end MPVs lies an annual revenue opportunity of almost 50 billion yuan ($7.25 billion).
Here’s the hard reality: The double-digit growth days of selling nearly 25 million cars a year are vanishing in the rearview mirror. So are outsize profits from China. Much like the U.S. market, the type of demand will evolve and how people get around will change.
Younger Chinese are more inclined to use ride-hailing services. The older people get, the less likely they’ll obtain driving licenses. China’s population is aging rapidly. This is a structural slowdown.
In theory, China has plenty of room to sell more cars. Penetration rates are low and so is the national percentage of licensed drivers. The carmakers are banking on semi-urban China, ostensibly the most upwardly mobile consumers. But sales are unlikely to top 20-some million a year, even with the push toward electric vehicles (only 5 percent of vehicles sold now) and regulations that will eventually force buyers to go green. For now, higher technology only raises the cost of car ownership out of reach.
The market is oversupplied, no doubt. The good news is that inventories are coming down as automakers try to stay in the black. Toyota Motor Corp. has increased the types of models it sells in China and gained market share. As weaker players drop out and the industry consolidates, the likes of Honda Motor Co. and Volkswagen Group are taking a bigger piece.