With 22% of market growth last year in China, the premium segment is indeed still ahead within the Chinese automobile market, even if this Eldorado is slowly decreasing.
1 / The market demand
In 2015, only 75 on 1000 Chinese have a vehicle. And reaching this milestone represents always the sign of a social ascent in a country. However, the structure of the automotive market is changing a lot, the market of supply is becoming a market of demand. Indeed, after the upper classes emerge a new group of customers: the middle classes. BMW noted that 310 million Chinese will be urban by 2030. So here is a huge new potential target market.
2 / A higher mix
The authorities in Shanghai want to double the minimum wage, which is now at 2600 RMB. With higher income, they will buy cars and invest in car equipment; the overall market with the product mix will increase. The Interior division, which makes dashboard or door linings, boards takes full advantage of this phenomenon.
The mix increases also in the medium segment with a new booming segment: the entry premium.
3 / The growth of the Chinese Brands
These new models have benefited the growth of Chinese manufacturers in the first quarter, after months and months of decline.
According to figures from the firm PwC, sales of Chinese brands jumped by more than 20% in the first quarter. This rebound has however confirmed the obligation for the European, American and Japanese to seek new models of business.
4 / Some more regulations
The Chinese authorities are pushing the emergence of local manufacturers. This policy is also supported by the regions which, from Shanghai to Shenzhen or Chengdu, all have a large local group. For new entrants such as Renault, this means a drastic regulation to follow. Indeed, the French multinational cannot produce that compact vehicles, according to the terms of its license, and must prove its profitability or install an on-site R & D centre or engine plant to grow.
5 / Sourcing local
More generally, sourcing and adapt to local producers is essential to a level that it is much more integrated than the template designed for the Western market. For the older players, it also important to seek for diversity. This is what BMW is currently doing. The German manufacturer will soon produce in China a local version of the SUV X 3 but also an MPV, an adapted declination of its minivan front-wheel drive, the Active Tourer.