China mini car left? Go right?
(Reporter Wang Canbin) “If we don’t continue to offer preferential policies to mini-vehicles, they might completely vanish from the Chinese market by 2010 at the latest,†said Rao Da, Secretary General of the China Association of Automobile Manufacturers, during a recent seminar on auto industry policies and market trends. His statement sparked heated debate among industry insiders. However, Pang Hai, Executive Deputy General Manager of Dongfeng Junan Sales Co., Ltd., which produces the Dongfeng Xiaokang mini-vehicles, strongly disagreed. He argued that mini-cars are gradually improving in terms of safety and environmental standards, making it unlikely for them to disappear by 2010. Industry experts also pointed out that the growth of second- and third-tier cities and rural areas has created new demand for mini-vehicles. Haima Motors, for example, is investing 1 billion yuan into developing a micro-car production base in Zhengzhou, signaling continued confidence in the segment.
Currently, there is no official definition of what constitutes a "mini-vehicle" in China. Generally, it refers to small passenger cars, including micro-taxis, micro-vans, and micro-sedans, with engine displacements typically below 1.0L.
Market share has been shrinking over the years. In 2006, while overall car sales in China increased by 36.89%, sales of mini-vehicles dropped by 7.16% to 328,100 units. By the first half of this year, domestic sedans sold 2.2869 million units, up 25.92% year-on-year, but mini-vehicles (with displacements of 1.0L or less) only accounted for 143,300 units, a 28.87% drop. This represents just 5.8% of the total market.
The average engine displacement of new cars in China rose from 1.53L in 2006 to 1.68L in 2007, an increase of 0.15L. Fuel consumption also climbed by about 5%, nearing levels seen in Japan.
Brands like Tianjin FAW Xiali and Chery QQ, once dominant in the mini-car segment, have seen their rankings fall significantly despite still being top-selling models.
Analysts attribute the decline to shifting consumer preferences. As incomes rise, more people are opting for higher-end vehicles. According to a survey by Xinhuaxin Market Research, less than 20% of potential buyers consider mini-cars as their first choice. Additionally, many mini-vehicles fail to meet Euro III emission standards, and some have been banned in major cities due to lack of onboard diagnostic systems. Safety tests also show poor performance, with most scoring below three stars in C-NCAP crash tests.
Moreover, price cuts on low-end models have reduced profit margins, discouraging manufacturers from investing further in the sector.
Government policies aimed at supporting energy-efficient small-displacement vehicles have had limited success. While tax reductions were introduced in 2006, many cities still impose restrictions on such vehicles. A new local standard in Shanghai, set to take effect soon, requires mini-vehicles to meet strict energy-saving, safety, and environmental criteria. If implemented nationwide, nearly 60% of current models may fail to comply, forcing companies to either invest heavily in upgrades or shift to larger engines.
Despite these challenges, mini-commercial vehicles remain strong. SAIC-GM-Wuling reported a 23.1% year-on-year increase in sales of micro-commercial vehicles, reaching over 310,000 units in the first half of the year. Companies like Changan and Wuling are also investing in new platforms and advanced engines to improve performance and meet evolving demands.
While mini-cars struggle in big cities, they find a growing market in second- and third-tier cities and rural areas. With over 800 million farmers and thousands of small towns, the rural auto market holds significant potential. Mini-cars, being affordable and practical, are well-suited for these markets.
Japan offers a useful example. Over 25 million mini-cars are registered in Japan, accounting for about one-third of all vehicles. Despite economic challenges, mini-cars gained popularity due to their fuel efficiency and cost-effectiveness. Their sales have consistently outperformed larger vehicles, showing the long-term viability of the segment.
In conclusion, while mini-vehicles face numerous challenges, including safety concerns, poor quality, and insufficient policy support, they still have a future in emerging markets. With continued innovation and strategic investment, the mini-car industry may yet carve out a sustainable niche in the Chinese automotive landscape.
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