Strategy Analytics: Auto Shanghai 2011 - Chinese Car Makers Face Tougher Competition

BOSTON--The Strategy Analytics report, "Auto Shanghai 2011: Domestic Car Makers Face Tougher Battle Ahead," predicts that Chinese car makers will need to invest in more innovation to compete against foreign brands because they face increasing competition in the domestic market. In 2010, sales of cars imported into China rose by 37 percent.

“Auto Shanghai 2011: Domestic Car Makers Face Tougher Battle Ahead”

More foreign manufacturers are ready to enter the Chinese market. Many are looking to raise local content sourcing, localize technical development, expand dealer networks and form new economy sub-brands, such as GM's Baojun, in order to tap into the lower (inland) tier compact sedan markets, once the near-exclusive preserve of Chinese brands. This will significantly increase the competitive pressure on Chinese automakers.

Kevin Mak, analyst in the Automotive Electronics Service at Strategy Analytics, said, "The evidence gleaned from the Auto Shanghai show is that Chinese OEMs will raise powertrain efficiency to offset the rise of gasoline prices and to meet stricter fuel economy mandates. Sales potential for touch screens and connected infotainment systems will also increase. However there needs to be more investment in core vehicle development in order to compete against the non-Chinese OEMs that are targeting growth segments, such as compact cross-overs."

Mak adds,"Many Chinese car makers are still slow to bring new concepts to market. They have not yet developed the original designs and technology which differentiate brands. There are also too many lesser-known brands competing against each other, resulting in falling margins. The Chinese industry should consolidate further, forcing state-owned players to face real market conditions. 'Innovation for the Future' was the theme of the Auto Shanghai show, appropriately guiding Chinese OEMs to compete more effectively against well-established foreign brands."

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