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August 9, 2012

Chinese OEMs in Chile: Is Growth Sustainable?

SantiagoAnalyst Insight By Neil King, Analyst – Automotive

According to a January 2011 report from the National Automotive Association of Chile (ANAC), more than 25% of light vehicle sales in Chile fall into the price band between 5 and 7 million Chilean pesos (approximately US$10,000-14,000), while over 50% of vehicles cost less than CLP10 million (roughly US$20,000). In this context, Chinese brands have been steadily increasing their sales in Chile and, moreover, their market share, which climbed to 8.5% in 2011 and rose further to 9.6% in the first half of 2012. Click to Tweet!

Chinese Brand Light Vehicle Sales and Market Share, 2008-2011 and First Half 2012

Sales Volume and Market Share

Source: ANAC

The early success of Chinese brands such as Changan, Chery, Great Wall and Hafei in Chile means that others have followed them into the market. There were already 12 automotive brands operating in Chile in 2008 and this has since increased by 50% to an astounding 18 brands. Great Wall remains the clear leader among the Chinese contenders and regularly makes it into the top 10 of vehicle sales by brand. In fact, Great Wall sold more vehicles in Chile than the Chrysler Group in the first half of 2012. Click to Tweet!

An ADACH (Chilean Motorist Association) study in 2008 revealed that a litre of petrol costs around 0.18% of per capita monthly income in Chile, making it the second most expensive worldwide (after Turkey) and double that of countries such as Hungary, Portugal and Thailand. The specialist website Invertia.cl declared that “when the time comes to buy a new car, Chilean consumers inevitably look to low consumption models or go straight to diesel options”. This certainly helps to explain the success of Chinese OEMs in the country.

Another factor is that Chilean households are still relatively less affluent than those in many other countries. In 2009, only 36% of Chilean households had an annual disposable income of more than US$25,000 and only 4% had an annual disposable income in excess of US$75,000. Click to Tweet! However, household annual disposable incomes are expected to grow dynamically, particularly in the higher income brackets. The number of households with an annual disposable income of more than US$25,000 is expected to increase by 53% between 2012 and 2020 for example, reaching 3.5 million (61% of total households). Click to Tweet!

Light Vehicle Sales and Households by Selected Disposable Income Band, 1994-2020



Source: ANAC, Euromonitor International

This bodes well for total vehicle sales in Chile but not necessarily for Chinese brands as consumers can afford to be more aspirational. Ignacio Larraechea, Dean of the Faculty of Economics at Chile's Central University, says that “Chilean consumers are 'aspiration-oriented' as they 'permanently' want to upgrade their televisions, cars, other electrical appliances and household durables”. However, this then creates opportunities for OEMs that are positioned above the Chinese players, although some Chinese carmakers will invariably be seeking to move upmarket themselves. The long-term sustainability of the growth of Chinese automotive brands in Chile is therefore in question, especially in market share terms. Nevertheless, their success here cannot be ignored, especially as they seek to enter more and more export markets as demand cools at home.


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