China is without doubt the largest automotive market in the world with sales in 2014 of around 23.5 million light vehicles. But given the population of around 1.36bn, the motorisation of China is still at an early stage. That said, the country already experiences serious air pollution, which has led to curbs on car sales in some cities. Most of the pollution is caused by a reliance on coal-fired power stations. China is the largest single emitter of carbon dioxide produced by the burning of fossil fuels, according to information form the US Central Intelligence Agency (CIA).

In area, China is slightly smaller than the US and the fouth largest country on Earth after Russia, Canada and the US, but with a far higher population density than any of these larger countries. CIA data suggests that 54.4% of the population lived in urban areas in 2014 and also suggests that the rate of urbanisation in the country has been around 3.05% per year between 2010 and 2015. Such a highly urbanised society is likely to shape how China’s motorisation proceeds.

This year, LMC Automotive reports that light vehicle sales in China reached 4,142,495 by the end of February, representing a seasonally adjusted annualised selling rate of 24.6m units, a 6% year-to-date rise compared with 2014. At the same time, both exports and imports have fallen. Data from the China Association of Automobile Manufacturers (CAAM) shows that in Q1 2015, exports reached 183,200 units, consisting of 104,600 cars and 78,700 commercial vehicles. Overall this is a decline of -12.3% on Q1 2014, with car exports down -17% and CVs -5.3%. Total imports in January and February were down -18.7% compared with the same period in 2014.

Light CVs

Similarly, sales of light commercial vehicles in China have been in decline for a while. In January and February sales reached 0.57m units, down -16% year-on-year compared with the same period in 2014. LMCA reports that the light truck segment continued to lead this decline with sales down -24% YTD. It seems that growing environmental awareness is at least partly responsible for this decline as many cheaper models produce high levels of emissions.

But Arthur D Little believes there is great growth potential in the Chinese light CV sector. Currently the company describes the light CV sector as low-cost and dominated by local brands. Wuling, Dongfeng and Changan take 80% of the market between them. Most models are sold as passenger variants because there are cost and restrictive usage implications for cargo versions. But environmental pressure is growing and Arthur D Little points to a need for the product development expertise of Western OEMs to assist with implementing the technologies needed, from emissions performance to improved safety, to prepare for possible changes in local regulations.

SUVS & MPVS

LMCA reports that growth in the car sector reflects the trends seen elsewhere in the world with strong sales in the SUV sector. MPV sales growth was also impressive. Local manufacturers of these models have performed well with locally made SUVs growing by 46% and MPVs by 20% year-on-year. LMCA data suggests that Chinese branded SUV models have enjoyed sales that have doubled compared with the same period in 2014 to 0.46mn units, a total that exceeds that of all the locally-produced foreign branded SUVs put together. Seven of the top 10 best selling SUVs were Chinese branded, with the Haval H6 the best seller with 56,300 sales in January and February.

Chinese brands are also thriving, reports LMCA, with sales growth double that of the light vehicle sector as a whole at 12% YTD. LMCA data suggests that Chinese branded models have seen their market share reach 43% in January/February compared with 38% in the same period in 2014. The trend has continued in Q1 with Chinese brand car sales rising 20.8% to 2,292,200 compared with 2014 according to data from CAAM. The total was made up of 728,900 SUVs, up 108.3% on Q1 2014 and 527,900 MPVs, up 24.7%, while tradition passenger car sales actually declined by -2.3% to 710,400 units.

For the January-February period, LMC data shows that the Wuling Hongguang was the best selling passenger model with sales of 122,082, down -17% on the same period in 2014. The Volkswagen Lavida was the second best seller with 101,400 sales, a -6% reduction on 2014 and the Haval H6 was the third best-selling passenger model with sales up 32% on the same period in 2014 to 56,303.

Air quality issues in China have helped to stimulate the market for alternative fuel vehicles there. Statistics from CAAM show that 27,271 cars fuelled by alternative energy were produced in China in Q1 2015 and 26,581 were sold. This breaks down into 16,113 battery electric vehicles (BEV) produced and 15,409 sold, an increase of around 3.7 times more than in Q1 2014. Data for PHEVs show 11,158 were produced and 11,176 sold in Q1, 2.1 times more than in Q1 2014.

Business Cars

Not surprisingly, the business car sector is quite different from that in either Europe or North America. Frédéric Hamain, general manager of ALD China, explains that one reason is the vast number of leasing companies in China.

“There are so many leasing companies, or so-called leasing companies in China. I would say around 25,000 companies are doing car leasing. There is no centralised picture. They are called leasing companies, but everyone has a different definition of what leasing is. Some view a three-month lease as long-term. The ALD Automotive view is that long-term leasing in China may be around 60,000 cars a day.”

Hamain would qualify a further 200,000 cars a day as short-term rental. Considering there are around 155,000,000 cars on the road in China, the leasing and rental sectors make up a relatively small proportion of the total. For all company cars, it is again difficult to be precise, but Hamain reckons that the total is around 10% of the European company car sector. He also illustrates the pace of development in the country, “20 years ago in China, there were 5,000 cars and now it’s around 155 million, so it’s extremely fast growing, but not on the corporate market. Every year, there are around 20m cars registered in China and if you include light CVs, that makes maybe 23m. I estimate that the new cars registered every year by leasing companies is around 20,000, so it’s roughly 0.1% of the new car market.” This only refers to the corporate car market.

Hamain also points to completely different mobility needs in China from either North America of Europe, because of the urbanised population and the size of the cities, which are vast. This has a number of effects. The first is that for transport in cities, there is a choice of public transport and car rental. There are convenient ways to move around the cities without a designated car. Similarly because of the distances involved in travelling around China, business people are more likely to fly between distant cities than drive. So overall there is little incentive to offer cars for business transport.

Even so, there is still room for significant growth, “Probably the average growth for leasing cars to corporates may grow more than 20% per year for the next five years. That’s faster than the car market itself, but still we are at a very low level. We are like China 20 years ago with 5,000 cars on the road, but we can see how that developed.”

Users of these cars tend to be at manager level and provided as part of their company benefits. “We see some companies starting to re-organise their fleet”, comments Hamain, “These are wanting to clarify their costs.” This is because with the rapid expansion seen in the past five years, companies were growing so fast that they were not that concerned about costs, “But when you are digging into all the costs, a leasing solution can be one way to clarify those costs.

“We have been asked for advice from several corporates. They tell us they have around 50 cars. After three months of discussion and checking, they find they have 100 cars.”

There has been a tendency for managerial staff to have a chauffeur in China, but Hamain thinks that this trend will decrease because of the costs involved.