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In China’s Auto Market, Smaller Cities Are in the Driver’s Seat
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In China’s Auto Market, Smaller Cities Are in the Driver’s Seat

Car ownership in China is no longer just a privilege for a select few, as it’s quickly becoming a reality for more and more of the country’s general public. In fact, continuous urbanization and improving living standards across many of the country’s smaller cities are having a significant impact on the car buyers of tomorrow—a strong majority of whom live in China’s fast-growing tier three and tier four cities.

These smaller cities—those dwarfed by tier-one counterparts like Beijing and Shanghai, as well as tier two municipalities like Chengdu, Tianjin and Chongqing—is where tomorrow’s car buyers live, according to a joint study between the China Association of Automobile Manufacturers (CAAM) and Nielsen. Notably, the study found that these fast-growing tier three and tier four cities are home to nearly 70 percent of the country’s potential car buyers—many of whom are considering these purchases for the first time.

According to the study, 68 percent of the consumers that may buy a car in the next 12 months live in tier three and tier four cities, which are home to 55 percent of China’s current car owners. But it’s not just current car owners that are thinking about buying. More than half of the potential buyers in these cities (56%) are first-time buyers.

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Who Might Be Buying What

In terms of price range, nearly 60 percent of the potential buyers in tier three and tier four cities plan to spend less than 120,000 yuan, and one-third of them have a budget between 80,000 and 120,000 yuan.

In terms of auto choice, utility is a prime consideration for consumers in lower-tier areas. Fuel efficiency (55%), safety (47%) and quality (43%) top the list of major considerations, whereas factors like comfort (27%), brand reputation (26%) and features (24%) are less important. This pragmatic attitude is also reflected in the emphasis on after-sale services, safety features and manufacturer guarantees. These consumers are also less likely to require cars that are equipped with fuel efficiency engines, telematics or other advanced features.

Compared with the up-and-coming lower-tier cities, the purchase intent in larger cities like Shanghai, Beijing, Chengdu and Tianjin is much lower—about 23 percent against the total number of potential buyers nationwide, many of whom already own cars. Even so, these higher-tier markets are a vital part of China’s future auto market. That’s because 65 percent of the potential car buyers in these cities (23%) are repurchase buyers—those who plan to replace a current vehicle or add one.

In contrast to the lower-tier cities, sedans (60%) and SUVs (45%) are the most desired in the higher-tier cities. Like their counterparts in the lower-tier cities, buyers in these areas prefer safety systems, but they also seek out fuel-efficient engine technology as well—a clear distinction from potential customers in tier three and four markets.

“High-end sedans and SUVs have now become a new frontier for automobile makers to further tap into in high-tier cities,” said Alice Yu, vice president, Nielsen China. “Cars with advanced powertrain technology and smart features are likely to win over more consumers in this highly competitive market.”

New Faces in the Driver’s Seat

Women represent one of the largest opportunities for manufacturers and retailers, as purchase intentions for cars among Chinese women have increased dramatically since Q1 2009. And as more and more female consumers consider buying vehicles, they’re keeping an eye on three key attributes: safety, comfort and style. The purchasing motivations behind these preferences? Personal leisure and family life.

In terms of preference, prospective female car buyers in China prefer hatchbacks (42% vs. 34% for men) over sedans (36% vs. 43% for men). They also pay more attention than men to product quality, price, comfort and after-sales services. In terms of features, women favor protective and proactive safety systems, parking assistance, automatic transmission and telematics.

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Car buyers in their 30s and 40s represent another growing group of potential car buyers. Half of the car owners in China were born after 1970, and 32 percent of these consumers say they plan to buy a car in the next 12 months. Generation Y is a quickly growing demographic, representing consumers born from the early 1980s through the early 2000s. Thirty-four percent of Chinese Gen Yers say they plan to buy a car in the next 12 months.

While older generations look for utility and place an emphasis on the status of owning a car, the younger Gen Y crowd considers a car as an extended tool for their social lives—somewhat of an exclusive independent place. As they ponder their car options, Gen Yers are mindful of price as well as style, as they plan to spend between 80,000 and 120,000 yuan and are most drawn to hatchbacks (40%).

“Unlike their parents, who give priority to their cars’ functions and performance, younger consumers value the personality a car can express,” said Ms. Yu.

Reaching Tomorrow’s Buyers

With a wide range of potential auto buyers, it’s critical for auto marketers to choose their ad spend and marketing channels wisely. Females for example, say 4S dealerships (short for sales, service, spare parts and surveys) are the most important (70%) information channel. They also like auto expos (66%) and recommendations from families and friends (58%) and auto magazines (47%). Female consumers are more likely than men to turn to social media.

Generation Y, on the other hand, grew up with the Internet and quickly evolving computer technology. So with their inherent tech-savvy natures, these consumers are more willing to turn to a variety of online channels for auto information, such as bulletin board systems (72%), official Weibo (Chinese microblogs) sites of auto manufacturers (63%) and WeChat (mobile text and voice messaging service in China) (57%).