Considering China

Changes could be coming in the China market that could have a non-trivial effect on producers of non-luxury models.

Consider this passage: “The seasonally adjusted annualized rate (SAAR) of LV sales reached 26.7 mn units in March, an 8 percent decline from the holiday-adjusted February. This suggests that the market has failed to gain momentum, following the slowdown seen in the opening two months of the year.”

That’s from LMC Automotive (lmc-auto.com), citing statistics from the China Association of Automobile manufacturers.

Yes, that’s right, a SAAR of 26.7-million units—which is a decline of 8 percent.

In terms of cars, there was a decline of 5.6 percent compared with last March, but a 0.3 percent increase looked at from the point of view of the first three months of 2017 compared with the same period in 2016.

And in China, as in the U.S., SUVs are doing well. According to LMC Automotive, there is a 20 percent rise compared to March 2016 and a 21 percent increase year-over-year for the first three months of each year.

That said, “the pace of growth was markedly slower when compared to last year.”

Yes, only in the China market can there be double-digit increases yet “markedly slower” growth.

If you ever wonder why there is such interest among Western OEMs in the China market, just consider those numbers.

But—and there’s always one of these, isn’t there?—changes could be coming in the China market, changes that could have a non-trivial effect on producers of non-luxury models.

Local Chinese brands—such as Great Wall, Changan, BYD and SAIC—are beginning to come into their own in the Chinese market.

Referencing what was on display by these builders at the recent Shanghai Auto Show, LMC analysts observe, “One of the key factors to emerge from the show was the fact that local manufacturers are demonstrating significant flexibility and speed when dealing with the demands of the market, as highlighted by their ability to accelerate new product research and development, and shorten the interval between new product launches.”

Think about that for a minute. One of the reasons that Honda, Toyota, Nissan, Mercedes, Hyundai, etc. put manufacturing facilities in the U.S. was to be closer to the market where they were selling vehicles. Being there means a greater understanding than being on another continent can bring. And given the performance of those companies and their like, it makes a whole lot of sense.

To be sure, the Western manufacturers in China all have local partners (presumably, this was done to (1) achieve a technology transfer and (2) to protect the local companies). But in many cases, what is being produced in these JV plants are slightly modified (to meet regulations and requirements) vehicles that can otherwise be found on the roads of Berlin or Baltimore.

But it seems as though it might be that in China it is being determined that quick reaction to consumer tastes can be better achieved by those who are themselves part of that consumer cohort.

The LMC analysts indicate that non-premium brand products are those likely to be under the greatest pressure from Chinese domestic brands. After all, the world over people know and love premium brands, whether it’s in automobiles or handbags. There is something to be said for the pedigree, and that’s not going to change in China or anywhere else, for that matter.

But for those who are in the mainstream, things will undoubtedly become more trying than it will be for companies that are able to provide something that is more distinctive or unique.

Come to think of it, that’s not just the China market, but pretty much everywhere else, too.