As slowing economic growth becomes the new norm in China, the domestic passenger vehicle market has bid farewell to years of high-speed growth and entered a new phase of development.
This era is characterized by falling overall sales, but we believe this is more a pause for breath than the end of the road, as the potential for growth remains strong, and the future of China’s automotive industry is bright. After all, China remains the world’s largest automotive market, and exhibits strong demand from prospective and existing car owners, both for new cars and, increasingly, used vehicles as well.
In the short-term, automakers in China face unprecedented challenges in adapting their strategies, and managing their brands, to ensure they are in position to capitalize as and when the market rebounds. Competition is intensifying, narrowing the opportunities for weak and challenger brands. Meanwhile, the proportion of first-time car buyers is declining, so that automakers must attract and maintain the loyalty of existing car owners as they become an increasingly important fulcrum of growth.
Automotive companies also face an urgent task in reframing their approach towards autonomous, connected, electric, and shared (ACES) vehicles and technology if they are to evolve sustainable business models. When it comes to connected car features and autonomous functions in particular, our research suggests consumers are not yet willing to pay premiums that are commensurate with their development costs.
In order to successfully negotiate this historic transition, executives of both foreign and domestic automotive companies must strive harder to understand their customers, and communicate their brands’ advantages.
The McKinsey 2019 China Auto Consumer Insights Survey, upon which this report is based, offers insights into what customers are thinking at every stage of their journey
to purchasing a vehicle, and beyond. This year, we polled 2,500 respondents of varying demographics and vehicle purchase experience in 20 major Chinese cities, aiming to assess their attitudes to brand, choice of channels, product preference, price sensitivity, and after-sales behavior.
Below are key recommendations based on our findings that will assist decision-makers as we move into the next phase of development in the world’s largest automotive market:
1.Segment and serve both existing and prospective car owners: The slowdown is temporary and demands improved understanding of both existing and prospective
car owners. China’s car parc, or the proportion of car ownership per thousand people, remains relatively low. Considering existing car ownership and the status of highway infrastructure, the potential for car sales growth is robust. Moreover, Chinese consumers remain attracted to the idea of car ownership on grounds of passion for driving, safety, and convenience, suggesting incremental long-term growth. Our survey shows strong willingness for existing owners to trade up towards a price range of 200,000 to 300,000 RMB. The ability to attract prospective customers while maintaining the loyalty of existing car owners is critical for OEMs at this stage.
2.Reshape brand perception and penetrate customers’ pre-purchase mindset: China’s passenger car market is becoming increasingly concentrated as consumers develop deeper loyalty to brands, especially in the domestic segment, where leading brands take nearly 80 percent market share. The current slowdown and fierce competition is pushing market consolidation as weaker brands are squeezed out. Chinese consumers tend to have only two to three brands in mind when they set out to buy a car, and nearly 60 percent of final purchases are sourced from brands in this group. Improving brand perception and top-of-mind awareness is consequently vital.
3.Innovate around omnichannel and improve customer experience: Although online channels are proliferating across all aspects of the customer journey, offline channels continue to play an irreplaceable role. Integrating both online and offline touchpoints to create an omnichannel experience that meets the changing needs of consumers, and introduces innovative service models, is essential. However, online channels still exhibit multiple pain points, such as information overload, and inefficient communication. OEMs must balance online and offline resources in order to achieve optimal impact.
4.Prioritize ACES functions to drive genuine value: China’s new-energy vehicle (NEV) market, comprising battery-electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) has been growing rapidly thanks to increasing consumer acceptance and knowledge, and strong government support. As their awareness improves, and policy support is withdrawn, consumers are becoming more rational in their choices regarding NEVs. We expect A- and B-class NEVs, or those vehicle sizes most suited to daily use, to dominate. Crucially, consumers are generally unwilling to pay for autonomous driving and connectivity services, making monetization models a key conundrum for automakers to solve. Developing a deeper understanding of customer needs, and improving their experience around ACES functions accordingly, will be key to driving profitability.
5.Fix pain points to unlock used car growth: About one in every five car buyers will now consider buying a used car. Our survey suggests sellers’ major concerns are speed and efficiency, rather than securing the highest price, while potential buyers are put off by a lack of mechanisms to allay fears relating to lack of trust. Addressing these demand- and supply-side pain points is critical for auto enterprises to unlock additional revenue streams.
As the Chinese automotive market enters a new phase, we will continue to unearth insights into what makes Chinese automobile consumers tick. Based on the latest automobile consumer insights, this report presents our findings, suggestions and thoughts on
how automakers should address customer operations, brand-building, omnichannel development and operations, product innovation and development, and business innovation in the world’s largest automotive market.