SHANGHAI -- It is high time that we get to know Chinese car buyers better, now that the Middle Kingdom has vaulted into position as the world's No. 2 vehicle market.
For automotive executives working in China, this seemingly straightforward job is much easier said than done. What is known is that Chinese will buy 5 million passenger vehicles this year. But the customer-data-at-your-fingertips culture we've grown accustomed to in North America simply is not there in China -- at least not yet.
Here are six factors that keep the Chinese car buyers shadowy and elusive.
First, the likes of GM, VW and Toyota are drawn irresistibly to the prospect of marketing to 1.3 billion potential buyers. At the same time, they have a hard time knowing where in this continent-sized market to find the 0.35 percent of people who will actually buy a car this year. Or as the Toyota Production System manual puts it: "The higher your inventory levels, the harder it is to find the part you need."
Second, there is startling disconnect between average incomes and sticker prices. In 2006, China's GDP per capita was $1,300. The price of a new car sold last year, on average, was $16,700.
This gap between incomes and prices reminds car marketers that Chinese wealth is concentrated tightly in a tiny percentage of the population, mostly along the eastern coast. (The divide between rich and poor in China, a socialist country, is more extreme than in the United States, the home of capitalism.)
Third, a head-turning 80 percent of people buying cars in China in 2006 did so for the first time. For marketers, the challenge is akin to anticipating the size of the next wave in an ocean storm. There is no historical reference.
In America, by contrast, less than 15 percent of new car buyers are purchasing their initial vehicle. When most folks are buying for the first time, how can you determine where and when to spend advertising dollars?
Fourth, Chinese people settle most car deals in cash. According to recent survey of dealers in major Chinese cities conducted by J.D. Power and Associates, less than one in ten people financed the purchase of their new car. Financing is related to personal credit histories. With the exception of Shanghai, no major Chinese city has accurate credit records.
Fifth, it is not unusual for the person who conducts the purchase of the vehicle to be different from the owner or driver. In the luxury segment, for example, it is common practice for China's new wealthy to send their drivers to the showroom to hand over cash and take possession of the vehicle. Families -- including uncles and cousins -- routinely pool their saving for the purchase of a single vehicle. The question of gets to who drive the car and for what purpose is determined later.
Sixth, Chinese people hold onto their cars for an average of 5-6 years. Trade-ins are rare. Instead, when the owners are ready for a new car, they often give their original to family or a friend. This behavior leaves dealers out of the lucrative loop of exchanging old models for new ones, and of course, learning more about their customer.
All of this uncertainty about the customer has done little to dent the enthusiasm of the 39 automotive brands competing for share in China. With the market up 28 percent annually, cars have eventually found their way to the customer.
As competition intensifies, however, the spoils of battle will inevitably accrue to companies who find inventive ways to get closer to Chinese buyers.
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