Gas guzzlers a hit in China, where car sales are booming By JOE McDONALD, AP Business Writer
Mon Apr 21, 2:19 PM ET
High, wide and fuel-hungry, the gleaming black Cadillac Escalade on display at the Beijing auto show is an unlikely car for an era of record oil prices.
But while sport utility vehicle sales in the U.S. are tumbling, automakers are finding that for China's newly prosperous car buyers, bigger is still better.
So General Motors Corp. has made the Escalade a star of its auto-show display and is eager to get it on the market here.
"If you look at the fastest-growing market segments in China, there are two ? SUVs and luxury cars," said Joseph Y.H. Liu, GM China's vice president for sales and marketing.
Auto sales in China are booming, with analysts and automakers forecasting growth at 15-20 percent this year. But demand for the biggest vehicles is even stronger, with sales of luxury cars and SUVs expected to surge by 40-45 percent.
The phenomenon is welcome news for automakers seeing little or no growth in the United States, Europe and Japan. They also make fatter profits from sales of high-end vehicles than from economy models.
Sales have been boosted by economic growth that has topped 10 percent for five straight years and a surge in real estate and stock prices that created a new crop of Chinese billionaires.
Buyers of land yachts have also been unintended beneficiaries of a government policy meant to help the poor. Beijing has tried to shield farmers and the urban poor from high oil prices by freezing pump prices for gasoline and diesel, keeping them among the world's lowest. That takes the sting out of filling up a gas guzzler.
Gas costs 5.34 yuan (76 cents) a liter or 20.5 yuan ($2.90) a gallon. State oil companies are barred from passing on rising crude costs to consumers, instead covering their losses out of profits from their drilling units.
Both foreign and Chinese automakers are using the Beijing show to highlight luxury sedans, muscle cars and SUVs. It opens to the public Thursday after a weekend press preview.
On Sunday, Daimler AG CEO Dieter Zetsche was joined onstage by film star Zhang Ziyi to unveil a top-of-the-line Mercedes-Benz SUV, the GLK, which goes on sale in China next year.
Daimler says Mercedes sales in China surged 42 percent in the first quarter. Sales of R-class minivans jumped 110 percent while those of M-, G- and GL-class SUVs doubled. The company says China is the second-biggest market for its S-class sedans, behind only the United States, and accounts for one-third of global Mercedes sales.
GM showed off its new Cadillac CTS sedan, which it said was designed with China in mind. It added a bigger back seat to the basic CTS model sold worldwide, since many Chinese owners sit in back while a chauffeur drives.
Cadillac's entry in the SUV competition, the Escalade, can seat up to eight people and gets an estimated 12 miles per gallon. It goes on sale in China next year.
For SUV sales, "the volume is low but the growth rate is high, and we're all trying to get into this segment," said Robert Socia, executive vice president of Shanghai General Motors, a GM joint venture with a Chinese partner.
By contrast, GM's SUV sales in the United States fell 22 percent in March from the same month last year.
China's auto market is still dominated by smaller, low-cost models such as the popular QQ made by Chery Automobile Co., the country's biggest domestic producer.
But even at prices below luxury levels, drivers are willing to pay for bigger wheels. Toyota Motor Corp. sold 170,000 Camry sedans in China last year, despite a price of more than 210,000 yuan ($30,000), according to J.D. Power & Associates. That is ten times the average Chinese worker's annual income.
"Chinese buyers typically like bigger cars and they have the resources to go for them," said Tim Dunne, J.D. Power's director of Asia-Pacific market intelligence.
Chrysler LLC, looking to China to help drive its resurgence as an independent company following its split with Daimler, unveiled two SUVs to be sold in China and said Sunday its new Jeep Wrangler goes on sale this month. The company says sales in China doubled in the first quarter over the same period of 2007.
Also Sunday, Volkswagen AG unveiled two sedans designed with a local partner for the China market.
Infiniti, Nissan Motor Co.'s luxury brand, announced it will launch its EX35 SUV in China this year, adding to a range of three sedans already on sale. Carlos Tavares, a Nissan executive vice president, said that portfolio should grow to 10 models in coming years.
Chery's lineup included an SUV, while Chinese maker Huanghai Motors Corp. was showing an SUV and an American-size pickup truck.
Beijing is trying to encourage the growth of China's auto industry and domestic sales ? but communist leaders are alarmed at pollution and rising dependence on imported oil, which they see as a strategic weakness. China is the world's No. 2 oil consumer after the United States, and imports rose 12.3 percent last year.
Beijing and other major Chinese cities are among the world's smoggiest, and the rise of big engines and more horsepower is adding to the haze.
Authorities are expected to try to clear the air for August's Beijing Olympics by getting half the capital's 3.3 million cars off the streets during the games. No final plan has been issued, but during a four-day test last summer drivers were ordered off the road on alternate days, based on license plate numbers.
Regulators are phasing in tougher emissions standards and higher sales taxes for bigger engines. They are pushing Chinese automakers to develop fuel cells and other clean propulsion.
But bigger models reign even among customers willing to pay more for hybrids and other cleaner technology.
General Motors says it will start selling a gas-electric hybrid in China in July. It will be the first manufactured in China and the second in the market following Toyota's Prius.
GM's hybrid will be a Buick LaCrosse, a full-size sedan, after research found likely buyers wanted a car that size, said Liu, the China GM vice president. He said sales are expected to be modest.
"The Chinese consumer is still back on the curve of satisfying their basic need for transportation," said John Parker, Ford Motor Co.'s executive vice president for Asia, "rather than looking at being green."
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