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June 15, 2012

Polarisation in the Chinese Vehicle Market

Cars_1Year-on-year growth in new vehicle sales in China went into reverse in the first quarter of 2012, although this is not a cause for concern. In fact, the negative growth in Q1 is perfectly understandable as government incentives for small cars and subsidies for rural buyers of light commercial vehicles that previously boosted sales have now ended. Demand at the premium end of the market was not incentivised, however, and continues to boom due to the unfaltering emergence of wealthy Chinese households.

On a global scale, annual light vehicle demand typically equates to around 10% of the number of households with an annual disposable income of over US$10,000. However, sales continued to run hot in China in 2011, equating to 11% of the number of homes with an annual disposable income of more than US$7,500. Euromonitor International forecasts that the number of these households will climb by a further 8% to reach 173 million in 2012, but as the stimulus packages are no longer available it is natural that a lower percentage of Chinese households will buy a new vehicle in 2012. Nevertheless, if just 10% of households with an annual disposable income of over US$7,500 invest in new private transport in 2012, this would equate to 17.3 million light vehicle sales, the same as in 2011.

Demand for premium vehicles has not been driven by fiscal incentives, however, and depends on the purchasing activity of wealthier households. In fact, households with an annual disposable income of US$35,000 are forecast to grow at the fastest rate in 2012 – by 15% - but all household bands above the US$10,000 level are predicted to enjoy double-digit growth in 2012.

China: Households by Annual Disposable Income (ADI), 2012 versus 2011

Percentage Change


In conjunction with this growth in the number of households in the market for cars which were not incentivized, ie those with more than a 1.6 litre engine capacity, new product particularly boosted the fortunes of BMW and Audi in the first quarter of 2012. For BMW, the Chinese-specific long-wheelbase versions of the new 3-Series and 5-Series, as well as the new 1- Series and X3, helped the BMW Group to find homes for more than 80,000 vehicles in China in the first quarter, 37% more than in Q1 2011. Similarly, Audi delivered more than 90,000 vehicles in China in the first quarter - 40% more than in Q1 2011 – buoyed in particular by the new A6 and the popularity of the Q5. The Mercedes-Benz passenger car division did not perform as well, however, as the expansion of Daimler's plant in Beijing restricted supply and new model activity was limited to the March launch of the redesigned M-Class. Mercedes-Benz passenger car unit sales thus fell by 13% compared to Q1 2011 but will be boosted by the arrival of the new B-Class and extended A-Class family in the coming months.

Overall, sales of the leading premium German carmakers increased by 24% in Q1 2012 and so they are easily on track to match the double-digit growth in affluent Chinese households that is forecast by Euromonitor International for 2012 and, in fact, through to 2020. As far as the overall Chinese market is concerned, the healthy demand growth of recent years will simply take a break in 2012 but the outlook remains entirely positive – underpinned by a 6% CAGR over 2012-2020 in the number of Chinese households with an annual disposable income of over US$7,500.


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