China mini car left? Go right?
(Reporter Wang Canbin) "If we don't continue to offer preferential policies for mini-vehicles, they will basically disappear in China by 2010 at the latest," said Rao Da, Secretary General of the China Passenger Vehicle Association, during a recent seminar on auto policy and market trends. His remarks sparked heated debate within the industry. "I disagree with that," said Pang Hai, Executive Deputy General Manager of Dongfeng Junan Sales Co., Ltd., which produces the Dongfeng Xiaokang mini-vehicles. He argued, "Mini-vehicles are continuously improving in terms of safety and environmental standards. How could they vanish by 2010?" Other industry insiders also noted that the growth of second- and third-tier cities and rural markets has provided new opportunities for mini-vehicles. Haima Motors, which has seen a revival in the passenger car sector, is investing RMB 1 billion in a micro-car base in Zhengzhou, showing continued confidence in the segment.
Currently, there is no official definition of mini-vehicles in China. Generally, they refer to small cars, including micro-cabs, micro-vans, and micro-sedans, with engine displacements mainly below 1.0L (including 1.0L).
Market Share Shrinks
Although Rao Da’s comments may seem alarmist, it's true that the market share of mini-vehicles has been shrinking in recent years. In 2006, while overall car sales in China rose by 36.89%, sales of lifted banned cars dropped by 7.16% to 328,100 units. According to the China Association of Automobile Manufacturers, sedans sold 2.2869 million units in the first half of this year, up 25.92% year-on-year. However, mini-vehicles with displacement under 1.0L sold only 143,300 units, down 28.87% from the previous year, accounting for just 5.8% of the market.
The average engine displacement of new cars in China increased from 1.53L in the first half of 2006 to 1.68L in the first half of 2007 — a rise of 0.15L or 9.5%. Fuel consumption per vehicle also increased by about 5%, approaching levels seen in Japan.
From the perspective of Tianjin FAW Xiali and Chery QQ, two major mini-vehicle brands, both still ranked among the top 10 best-selling models in the first half of this year, but their positions have significantly declined.
Reasons Behind the Decline
Many factors contribute to the challenges faced by mini-vehicles. Consumer preferences have shifted toward higher-status vehicles, and as incomes rise, more people are opting for mid-to-high-end models. The proportion of used car purchases has exceeded 25% of total car sales. A survey by Xinhuaxin Market Research found that less than 20% of potential buyers would consider a mini-car first when purchasing a vehicle.
Additionally, mini-vehicles often fail to meet modern emission and safety standards. Many do not comply with Euro III regulations, and some have been banned in cities like Beijing and Guangzhou due to lack of onboard diagnostic systems. C-NCAP crash tests have shown that many mini-vehicles score below three stars, raising concerns about their safety.
Price cuts on low-end models have also reduced profit margins, discouraging manufacturers from investing further in the segment.
Government Policies: Encouragement Not Working
In January 2006, six government departments issued a notice encouraging the development of energy-saving and environmentally friendly small-displacement vehicles. Since then, the automobile consumption tax was adjusted, and the industry expected a boost. However, data shows that these vehicles remain unpopular. Although tax reductions were introduced, many cities still impose restrictions on small-displacement vehicles. Stakeholders hope for greater support from the government.
A local standard for energy-saving and environment-friendly small-displacement vehicles has been approved in Shanghai and will be implemented soon. It includes strict requirements such as engine displacement under 0.8L, speed limits, and emission standards. If enforced nationwide, nearly 60% of current small-displacement vehicles may not meet the criteria, forcing manufacturers to either invest heavily in technology or shift to larger models.
Factory Response: Adapting to New Standards
While mini-passenger cars face decline, micro-commercial vehicles continue to grow. SAIC-GM-Wuling reported sales of over 310,000 units in the first half of this year, a 23.1% increase. In cities like Beijing and Guangzhou, annual sales exceed 30,000 and 20,000 units respectively, making them key markets.
Pang Hai of Dongfeng Junan said that major manufacturers are developing new generations of mini-vehicles with improved space, safety, and power. SAIC-GM-Wuling and Changan Auto are investing heavily in new platforms and advanced engines, aiming to match the performance of mid-to-high-end sedans.
Way Out: Second- and Third-Tier Cities and Rural Markets
Mini-cars may struggle in big cities, but they find a growing market in smaller towns and rural areas. With nearly 3,000 counties and 40,000 small towns, plus 800 million farmers, the rural auto market holds significant potential. As living standards improve, demand for affordable transportation increases, and mini-cars are well-suited to meet this need.
Japan's Experience with Mini-Cars
In Japan, where mini-cars are highly popular, there are over 25 million small-displacement vehicles on the road, accounting for one-third of all vehicles. Despite the rise of larger cars, mini-vehicles continue to dominate, especially after the economic downturn led to increased demand for fuel-efficient options.
Mini-car sales in Japan reached a record high of 2.22319 million units in 2006, proving their long-term viability.
Challenges Facing Mini-Cars in China
Despite their advantages, mini-vehicles face several issues: safety concerns, poor quality, lack of government support, low profit margins, and changing consumer preferences. 92% of Chinese consumers do not buy mini-cars, and the average displacement of new cars continues to rise by 0.15 liters annually. These factors highlight the challenges ahead for the mini-vehicle industry.
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