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Market shares of small displacement vehicles are declining fast

Small vehicle market share is declining fast


Despite municipal governments relieving some local restrictions on small-engine vehicles and collecting only the lowest percentage of consumption tax for them, the unclear and insufficient support for small displacement vehicles (mini and subcompact vehicles) has affected the segment¡¯s growth.


China¡¯s small displacement vehicle market share has shrunk significantly in the past three years. Mini vehicle and subcompact vehicle segments, in which most models have engines of 1.5L or below, are down 10 and three percent year-on-year for sales in the first six months of this year, in sharp contrast with double-digit growth of mid-level and luxury segments.


The minivan segment, with engines usually smaller than 1.3L, was the slowest growing segment in the first six months. It was only up seven percent year-on-year and lost three percentage points of market share.


China¡¯s vehicle market is much different from the international market where more and more customers favor small vehicles. According to statistics, the market share of small vehicle sales increased between 2000 and 2006 in North America from 12 to 13.9 percent, in Europe from 33.9 to 35.4 percent and in Japan from 45.6 to 49.5 percent.


China¡¯s mini vehicles are commonly short on power performance, safety, whole vehicle reliability and stability. The segment usually gives customers images of cheap price and low quality. Poor engine technology is one big issue.


In China, most small displacement engines manufactured by Liuzhou Wuling, Chang¡¯an and Harbin Dong¡¯an Engine. Great proportion of China¡¯s small displacement engines use technology developed in 1980s and 1990s in Japan.

Local analysts point out the poor technology utilized on these entry-level economy vehicles slowed down the segment¡¯s growth in China. Chinese customers now are willing to spend more money to purchase better safety, more powerful cars with bigger interior space.


Although the small displacement cars have advantages of fuel efficiency and low maintenance costs, to have a decent car is also a very important factor to Chinese consumers. Steadily declining car prices and quickly increasing consumer income enable more and more customers to afford bigger and higher level vehicles.


Meanwhile, low profitability of small vehicles causes OEMs to prefer to stick to developing and launching compact and upper level models. OEMs hesitate to spend money and time on low profitability entry-level models.


BYD, Geely and Chery are all gearing up to develop more advanced and mid-level models. Brilliance Zhonghua and Jianghuai introduced mid-luxury level models for their very first car product.


Major mini carmakers losing market share


In the mini car segment, in which more than 90 percent of all models are produced by local Chinese  makers, only two models realized positive growth in the first half of this year.


Among all major mini cars, Tianjin-FAW-Xiali¡¯s Xiali and Chery QQ are the two strongest competitors in this segment. The two models¡¯ combined shares took up over 51 percent so far this year.


Xiali can boast the advantages of reliability and low maintenance cost as proven in the taxi market during past decades. However, a 28 percent decline was not avoidable in the market this year. Xiali¡¯s engine technology is based on old Daihatsu and Toyota¡¯s technology in 1980s.


The QQ¡¯s two percent growth was attributed to the sales of the newly launched QQ sedan. The old 0.8L QQ hatchback failed to escape the fate of the quickly shrinking market share.


Stagnant performance of the small engine market also influenced the sales of SAIC-GM-Wuling (SGMW)¡¯s Spark, which suffered a six percent decline in the first six months.


According to its latest news release, SGMW¡¯s newly finished engine plant will begin production in August. The new engine, which is able to produce 50kW per liter, will be equipped on Sparks later to enhance the product¡¯s competitiveness.


As a representative of high-end mini cars in China, ¡°Spark¡¯s sales are always restrained by the slow engine supply from Daewoo engine plant in South Korea¡±, an SGMW¡¯s insider told CBU/CAR last year when Sparks¡¯ sales grew fast. ¡°Spark is a very popular model in the world. Therefore, its engine is in hot demand.¡±


Spark¡¯s sales are currently influenced much by the poor performance of whole mini car segment, but the rapidly increasing fuel prices will undoubtedly lead to use more fuel efficient and environmentally friendly small vehicles. The segment¡¯s development will be especially revved up after China implements fuel taxes expected in a couple of years.


Small vehicle makers to upgrade engine performance


China¡¯s small vehicle makers are aware of the situation to upgrade their technology level, especially focusing on the powertrain.


A Tianjin-FAW-Xiali insider disclosed to CBU/CAR the carmaker is going to upgrade its 1.0L Xiali¡¯s power to 45kW from 39kW. The 1.3L Xiali 8A engine¡¯s power and torque will increase 5kW and 4Nm to 68kW and 114Nm.


The new Chery 1.3L QQ sedan already uses the ACTECO engine, which was co-developed with AVL List in Austria. Chery recently signed an agreement with Fiat to supply 100,000 ACTECO engines for Fiat and Alfa Romeo¡¯s models.


SGMW¡¯s new B series 1.0L engine, which uses latest technology to reach high power and Euro IV emissions standards, will directly affect its product¡¯s driving performance. Such high power engine among the same engine size is rare to see among domestic mini car models.


In the meantime, to equip with locally produced engine will guarantee prompt supply to SGMW¡¯s products. This will be helpful to shorten customers¡¯ purchasing time and assure market share.


Chang¡¯an Group¡¯s first car Benben, which was launched last November, has been receiving outstanding orders. The model uses 1.3L engine to compete with 1.0L models at similar price in the marketplace. Benben¡¯s engine, based on engine technology of Chang¡¯an-Suzuki¡¯s Swift, offers contented power for such a small model.


Local regulatory guideline now in effect for small vehicles


Major small vehicle makers such as Tianjin-FAW-Xiali, Chang¡¯an and Hafei have all complained of the weak and unclear regulatory controls on small vehicles. The lack of specific standards for small vehicle producers to follow has been upsetting their operation.


China government defined last year that the advanced small displacement gasoline and diesel engine¡¯s power should reach 50kW and 40kW per liter. Very few China produced mini vehicles are able to meet the standard at the moment.


Shanghai municipal government recently issued a new regulation to encourage advanced small displacement vehicles (engine size below 1.5L) to be effective in December 1 this year. The new regulation clearly specified eight areas for the type of vehicles.


Vehicle top speeds for engine size below 0.8L and between 0.8L and 1.5L should be higher than 130km/h and 150km/h; the vehicle 0-100km acceleration time should be within 16 seconds; for those engine max power is lower than 45kW/L should reach 50kW/L before July 1 in 2009; emission, fuel consumption and noise volumes are all required to meet the latest standards.


Shanghai¡¯s new policy also gives preferential treatment on road maintenance and number plate registration fees for small displacement vehicles.


According to the new standard, only 40 percent small-displacement vehicles are qualified now, while JV models took up most percentage.


Although government didn¡¯t specify when to carry out such a similar standard nationwide in recent years, country¡¯s regulatory support to high performance small vehicles is clearly enforcing.


In addition to the engine power¡¯s standard, small vehicle manufactures are facing challenges to meet the Euro III emissions standards. The implementation has forced some models to temporarily quit or stop distribution in large cities where Euro III standards are enforced.


It is worthy of note that SGMW¡¯s launching the powerful low displacement engine is going ahead of the competition, which is indispensable step for the company to maintain or expand its market share.


As Chinese government will continue to strengthen management to encourage small-displacement vehicles, more and more OEMs, especially those small vehicle makers will take actions, similar to SGMW, to upgrade or launch high-tech small-displacement vehicles.

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