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Second- and third-tier cities offer new chances for auto industry

By Pei Pei (chinadaily.com.cn)
Updated: 2008-09-23 15:26

Second- and third-tier cities offer new chances for China's auto industry, agreed experts and insiders at a recent industry event in Chengdu, Sichuan province, the China Business News reported yesterday.

"Consumers in second- or third-tier cities would be the main driver for auto market growth," Tang Teng, vice general manager of Dongfeng Peugeot Citroen Automobile, said at the China Automobile CEO Forum along with the Chengdu Auto Show, which opened on September 19 this year.

Shen Yingquan, president of Changan Ford Mazda Automobile Co Ltd, figured out auto manufactures will transfer their sales network to second- and third-tier cities in the future.

The trend is to build distribution networks in second- and third-tier cities under new market environment, said Sun Yu, director of Guangzhou Honda Automobile Co Ltd's south-western business center.

Meanwhile, a new marketing pattern will be created in these areas instead of the sale, spare parts, service and survey (4S), the common service mode for most auto manufacturers, Sun added.

Domestic automakers, like BYD Auto and Chery, were aware of the fine potential in China's second- and third-tier markets as early as in 2006. They had begun marketing their automobiles in these areas where multinational auto giants had no interest at that time.

China's automobile industry, which has experienced more than 10 years of fast growth, is encountering unprecedented pressures caused by a series of factors, including the soaring oil and raw material prices, devaluation of the US dollar, subprime mortgage crisis and the implementation of Chinese Anti-monopoly Law.

The country's auto industry, which performed well in the first two quarters of this year, posted the first decline of this year in August when domestic auto makers sold a combined 629,000 vehicles, down 6.34 percent year on year, according to statistics from the China Association of Automobile Manufacturers.

Shifting their focus to second- and third-tier markets could be a solution for automakers to survive amid the automobile consumption downturn.

In second- and third-tier cities, the economic and consumption level has been increasing remarkably, and transport infrastructure has been continuously improving, substantially boosting auto consumption in these areas, where fewer automobiles are currently running on the streets.