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Chinese brands pay price for single-minded bet on crossovers
Yang Jian | 2018/9/14

SHANGHAI -- It can be risky placing all your eggs in one basket, as the saying goes. That¡¯s the lesson Chinese carmakers should learn from the softening market over the past two months. 

Their big bet on crossovers, which worked wonderfully over the past several years, is now causing havoc with their sales.

Chinese brands beginning in 2015 moved in droves to allocate the bulk of their engineering and financial resources to launch new and redesigned crossovers. 

It was a smart tactic to gain market share as demand for crossovers grew and oil prices remained low. In 2017, domestic brands grabbed 43.9 percent of China¡¯s light-vehicle market, up from 38.4 percent in 2014. 

But most domestic automakers mistakenly scaled back their sedan offerings.  

Many of them, including two major light-vehicle makers, Great Wall Motor Co. and Jianghuai Automobile Co., went to the extreme and stopped developing new or redesigned sedans a few years ago. 

In June, demand for crossovers fell for the first time in more than a decade, dipping 0.5 percent from a year earlier. 

The downturn in crossover sales has continued -- ¡°SUV¡± deliveries dropped 4.7 percent in August after falling 8.2 percent in July, according to the China Association of Automobile Manufacturers. More than 90 percent of the ¡°SUVs¡± tracked by the industry trade group are sedan-based crossovers. 

By contrast, the dip in sedan deliveries, the largest market segment, has been milder: Sedan sales dropped 3.4 percent in August after slipping 1.3 percent the previous month.

Various reasons are being tossed out by industry officials and market researchers to explain the decline in crossover volume, ranging from the slowing Chinese economy, rising gasoline prices to Beijing¡¯s crackdown on noncompliant peer-to-peer online lending platforms, which have become an important source of vehicle loans for young consumers. 

As crossover volume slipped, so did the overall light-vehicle market. In August, light-vehicle sales fell for the second straight month, dropping 4.6 percent year on year to below 1.8 million.

With crossovers accounting for 59 percent of their volume in the first five months, Chinese brands bore the brunt of the downturn; they lack sedans to buffer the decline in crossover demand. 

In August, light-vehicle sales at domestic automakers slumped 11 percent after declining 6.1 percent in July. 

By contrast, sales at global automotive brands are holding up, reflecting solid sedan volume. August sales at General Motors, Volkswagen Group and other foreign automakers were flat at 1.1 million last month, after decreasing 4.7 percent in July. 

Geely Automobile Holdings, the only Chinese carmaker that has maintained a balanced portfolio of sedans and crossovers, has also navigated the market downturn remarkably well. 

In the past two months, Geely¡¯s sales rose 30 percent or more on demand for sedans as well as crossovers. The company derived more than 37 percent of its monthly sales from its top seller, the New Emgrand, and two other compact sedan models, in the period. 

The growth in China¡¯s gross domestic product slowed to 6.7 percent in the second quarter from 6.8 percent in the first quarter. The economy will lose more steam as the Trump administration is set to slap punitive tariffs on another $200 billion in Chinese goods in the coming weeks, after levying 25 percent tariffs on imports from China valued at $50 billion in early July. 

Beijing has also pledged to keep cracking down on mismanaged peer-to-peer lending platforms. And on Sept. 3, the government raised domestic gasoline prices for the 10th time this year.  

The moves will likely further undermine crossover demand in China. 

Unless domestic brands move quickly to roll out new products to gain market share outside the crossover segment, their market prospects will deteriorate.

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