China is one of the largest car markets in the world already and it’s expanding faster than any other. This is great news for car makers looking to sell cars within China, but what about the country’s domestic manufacturers who are looking beyond their own borders?
A few years ago it looked like Chinese carmakers were poised to take over the entire world, offering low-cost cars in a similar way to the Japanese in the 1970s and the South Koreans in the 1990s.
But even allowing for the recession, China has not made the impact on European car sales that many thought would be inevitable by now.
Home demand
There are a number of reasons why the Chinese car invasion has not happened and is unlikely to occur any time soon. The main reason cited by China’s own car makers is that there is huge demand at home and they need to satisfy this before looking to sell cars abroad.
While this is true to some extent, as China’s rapidly expanding middle classes look to owning a car as a way of demonstrating their newfound wealth and status, it’s far from the whole answer.
Forward-looking, backward-building
While European and North American car companies have been investing money, time and technology in building cars in China for that home market, Chinese firms have not been investing in creating cars for other regions but its own. Nowhere is this more obvious than areas such as safety and emissions.
As vehicle emissions in other developed countries are becoming ever more stringent to tackle global warming and air quality, China is less concerned with this.
It values its industrial and economic development more highly at present as it endeavours to catch up with the US and Europe for the range and quality of cars it produces.
Safety sense
The same reasoning is behind China’s domestic car models not being able to satisfy the safety standards demanded in Europe and the US. To sell a car in Europe, it must first be able to pass a number of strict crash test rules and come with standard ABS anti-lock brakes and ESP stability control.
These systems cost money to develop and install in a car, which would mean many of the car currently on sale in China would be too expensive to compete on value by the time they would arrive in Europe. Only Qoros has managed it so far, and sales will still be minuscule.
Impact of the PCP
There is one other reason why Chinese car makers are not dominating the market over here. Simply, car buyers now fund their choices in a different way to even a decade ago.
Where most car purchases used to be paid for up front, 90 per cent of new car sales in the UK are now financed through a PCP personal contract plan.
In short, you don’t need a large lump sum of cash and it allows drivers to choose a more expensive car than they might otherwise be able to afford. So, why buy a lower quality, cheaper car from China when you can drive a more premium product for no more outlay?
Chinese car companies will make inroads to our car sales eventually, but it’s unlikely they will effect the huge changes the Japanese and Koreans managed.
Not only have cars changed as a result of these shifts, car buyers themselves have changed. That is the biggest challenge China’s car makers face.