China’s auto industry officially started in 1955, in which the First Auto Works (FAW) in Changchun established and produced 65 units’ trucks. By 1985, thirty years passed by, China’s total automotive production reached 443,000 units, just equivalent to about one week’s production volume of United States in 1985.
Among the 443K units, sedan volume was merely 5,207 units, and together with 25,173 SUVs, these 30,380 units were all passenger cars China produced within one year.
Typically at that time, the automobiles were still regarded as “production goods” instead of “consumer goods”, though China established two auto JVs - Beijing Jeep and Shanghai Volkswagen in the middle of 1980s, there were no individual purchase at the time. Notably, the old VW Sanata-B2 retail price was around 200,000 Rmb in 1985, when a seasoned worker or engineer monthly salary ranged from 30 to 50 Rmb only.
Nevertheless, the famous “market in exchange of technology” policy was formed officially in 1980s, later on more JVs were established in the 1990s, including FAW-VW, DPCA, Changan Suzuki, Guangzhou Honda and Shanghai GM.
The production volume began to pick up steadily after 1985, and by the end of 1992, the total auto production volume finally exceeded 1 million units. Thanks to Mr. Deng Xiaoping’s southern inspection tour early 1992, the macro economy growth rocketed since then, individual car buyers emerged. By the end of 2000, production volume exceeded 2 million units for the first time.
The year 2001 saw China’s joining of WTO, to compete with imported products, car makers launched more locally produced models and also started to lower retail prices to more reasonable and affordable levels. As a direct result, the car market boomed in 2002 and 2003 by 62% and 83% respectively.
Looking at a tangible market growth after 2002, all the rest major OEMs formed their JVs in China, including Toyota, Nissan, Mazda, Hyundai, Mercedes, BMW, Ford and Fiat-Chrysler etc.
It took China 37 years to hit 1 million by 1992, and then another 8 years from 1 million to 2 million units by the year 2000. After 2001, China’s auto industry began its astonishing journey of average 1.5-1.6 million incremental volume per year, by 2009, China surpassed US auto production and sales, and became the No. 1 market in world, hitting 13.8 million automobiles.
Also after 2002, China’s new ingenious brands emerged, Chery, Geely, Great Wall and BYD entered market and compete on very low end, quickly captured sizeable market share. These local OEMs are the major drivers for price competition against JV competitors, and produced very affordable products for inland consumers.
In 2015, China produced and sold 24.5 million automobiles, almost 7 million more than the 2nd largest market of US, and the market is still growing at around 1 million units per year. China’s vehicle penetration hit 98 units/1,000 people by 2015, still much lower than 800 vehicles/1,000 people in US or 500 vehicles/1,000 people in Japan.
Though vehicle population in coastal large cities have saturated, more inland consumers can afford passenger cars, it is expected that the market will still grow at 5-6% in the coming 5 years. A total of 35-40 million new vehicles sales per year are highly possible within 5-10 years.
The author is managing director of Automotive Foresight (Shanghai) Co Ltd. He can be reached via email: firstname.lastname@example.org