• Thu
  • Jul 31, 2014
  • Updated: 6:00am
BusinessChina Business
VEHICLES

Report sees bend in road for China’s car sector

McKinsey survey predicts overall decline in sales on mainland, and says the money will be in luxury vehicles and after-sales services

PUBLISHED : Tuesday, 10 September, 2013, 12:00am
UPDATED : Tuesday, 10 September, 2013, 4:01am

While high-end car sales will remain an important driver of China's car market, after-sales services are expected to lead the sector's growth over the next decade, a study by global consulting firm McKinsey said yesterday.

China, the world's largest car market, will see local car-sales growth slow to about 6 per cent annually between now and 2020, compared to an average of 18 per cent in the period since 2006, according to the study.

However, high-end vehicles will outperform the overall market with growth of 8 to 10 per cent a year, the report said, boosted by consumers' desire to upgrade their vehicles.

After-sales services, which includes car financing, spare parts and used-car sales, is an even more promising sector, with expected revenue growth as high as 20 per cent a year by 2020.

"China has lagged far behind the United States and Europe in terms of the after-sales market," said Paul Gao Xu, a senior partner with McKinsey.

For example, he said around 90 per cent of US car buyers applied for car loans, but most Chinese consumers paid cash for their vehicles.

Gao said that was because the cost of applying for a car loan on the mainland was still high and procedures were complicated. In addition, consumers there were not in the habit of borrowing money for purchases, and lenders had not attached enough importance to the market.

"But this is going to change over the next decade," Gao said. "We believe banks in China will pay more attention to this service, as consumption loans are considered one of the key measures for the country to stimulate domestic spending."

The after-sales car-parts market is another sector with strong growth momentum. The study estimated that the annual revenue generated from that market would grow from €20 billion (HK$204 billion) this year to nearly €100 billion in 2020.

The study, based on data about leading carmakers and management interviews, said the profits of global automotive-equipment manufacturers were expected to rise by almost half to €79 billion by 2020, with more than half of that growth coming from China.

Compared with the period before 2008, it said, the major profit pools had shifted from Europe, Japan and South Korea to North America and emerging economies.

Mid-market and high-end vehicles are expected to become the main drivers of growth in emerging markets. Globally, high-end vehicles might account for as much as 50 per cent of the total profit in the car industry by 2020, the study said.

Despite the optimistic market outlook, it said carmakers would face rising costs brought on by tighter regulations and an intensification of research on alternative-energy vehicles.

"Manufacturers need to add new functions and improvements on new cars and are required to meet tightening regulations such as carbon-dioxide emission targets," Gao said. "This will encourage them to come up with proper strategies."

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