Growing Prosperity Fuels a Surging Demand for SUVs and Luxury Sedans
By Joe McDonald
Associated Press
Tuesday, April 22, 2008
BEIJING, April 21 -- High, wide and fuel-hungry, the gleaming black Cadillac Escalade on display at the Beijing auto show is an unlikely car for an era of record oil prices.
Although U.S. sport-utility vehicle sales are tumbling, automakers are finding that for China's newly prosperous car buyers, bigger is still better.
So General Motors has made the Escalade a star of its auto-show display and is eager to get it on the market here.
"If you look at the fastest-growing market segments in China, there are two -- SUVs and luxury cars," said Joseph Y.H. Liu, GM China's vice president for sales and marketing.
Auto sales in China are booming, with analysts and automakers forecasting growth at 15 to 20 percent this year. But demand for the biggest vehicles is even stronger, with sales of luxury cars and SUVs expected to surge by 40 to 45 percent.
The phenomenon is welcome news for automakers seeing little or no growth in the United States, Europe and Japan. They make fatter profits from sales of high-end vehicles than from economy models.
Sales have been boosted by economic growth that has topped 10 percent for five consecutive years and a surge in real estate and stock prices that has created a crop of Chinese billionaires.
Buyers of land yachts have been unintended beneficiaries of a government policy meant to help the poor. Beijing has tried to shield farmers and the urban poor from high oil prices by freezing pump prices for gasoline and diesel, keeping them among the world's lowest. That takes the sting out of filling up a gas guzzler.
Gas costs $2.90 a gallon. State oil companies are barred from passing on rising crude costs to consumers, instead covering their losses out of profits from their drilling units.
Both foreign and Chinese automakers are using the Beijing show to highlight luxury sedans, muscle cars and SUVs. It opens to the public Thursday after a weekend news media preview.
On Sunday, Daimler CEO Dieter Zetsche was joined onstage by film star Zhang Ziyi to unveil a top-of-the-line Mercedes-Benz SUV, the GLK, which goes on sale in China next year.
Daimler says Mercedes sales in China surged 42 percent in the first quarter. GM showed off its new Cadillac CTS sedan, which it said was designed with China in mind. It added a bigger back seat to the basic CTS model sold worldwide, since many Chinese owners sit in the back while a chauffeur drives.
Cadillac's entry in the SUV competition, the Escalade, can seat up to eight people and gets an estimated 12 miles per gallon. It goes on sale in China next year.
For SUV sales, "the volume is low, but the growth rate is high, and we're all trying to get into this segment," said Robert Socia, executive vice president of Shanghai General Motors, a GM joint venture with a Chinese partner.
By contrast, GM's SUV sales in the United States fell 22 percent in March from the same month last year.
China's auto market is still dominated by smaller, low-cost models such as the popular
QQ made by Chery Automobile, the country's biggest domestic producer.
But even at prices below luxury levels, drivers are willing to pay for bigger wheels. Toyota Motor sold 170,000 Camry sedans in China last year, despite a price of more than $30,000, according to J.D. Power and Associates. That is 10 times the average Chinese worker's annual income.
"Chinese buyers typically like bigger cars and they have the resources to go for them," said Tim Dunne, J.D. Power's director of Asia-Pacific market intelligence.
Beijing is trying to encourage the growth of China's auto industry and domestic sales -- but communist leaders are alarmed at pollution and the rising dependence on imported oil, which they see as a strategic weakness. China is the world's No. 2 oil consumer after the United States, and imports rose 12.3 percent last year.
Regulators are phasing in tougher emissions standards and higher sales taxes for bigger engines. They are also pushing Chinese automakers to develop fuel cells and other sources of clean propulsion.
But bigger models reign even among customers willing to pay more for hybrids and other cleaner technology.
General Motors says it will start selling a gas-electric hybrid in China in July. It will be the first manufactured in China and the second in the market after Toyota's Prius.
GM's hybrid will be a Buick LaCrosse, a full-size sedan, after research found that likely buyers wanted a car that size, said Liu, the GM China vice president. He said sales are expected to be modest.
"The Chinese consumer is still back on the curve of satisfying their basic need for transportation," said John Parker, Ford Motor's executive vice president for Asia, "rather than looking at being green."
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