The Car and Truck Fleet and Leasing Management Magazine

State of the Chinese Commercial Fleet Market

October 2017, by Mike Antich - Also by this author

Chart courtesy of GM.
Chart courtesy of GM.

China is the world’s largest automotive market, both in terms of sales and units manufactured. In calendar-year 2016, there were 28 million vehicles manufactured in China, representing almost a third of the total global production.

The Chinese OEM brands have performed the best in the Chinese domestic market, gaining market share from foreign brands by introducing new small crossovers, which as elsewhere in the world, continue to be the type of automotive products desired by consumers.

A case in point is the Chinese OEM Geely, which nearly doubled sales year-to-date in the 2017 calendar-year on strong demand for three new crossovers.

On the other hand, another Chinese OEM Great Wall Motor Co., the country’s largest manufacturer of crossovers and SUVs, has seen a softening of sales as its product line has started to grow long-in-the-tooth.

Great Wall Motor Co. was founded in 1984 and is the 7th largest automaker in China, with a market share of 3.8%. In 2016, it had sales of 1.1 million vehicles, with SUVs making up 933,000 of the total units sold.

Great Wall recently made international news when it was reported to be interested in buying Jeep, which has expanded global production into Latin America, Asia, and Europe. In 2016, Jeep’s global sales were 1.41 million vehicles, of which, a third were sold outside North America in major markets such as China, Brazil, and India.

Other OEMs selling crossovers are also experiencing vulnerability because of stagnant product lineups. From 2013 to 2014, PSA achieved robust sales growth in China after it launched two small crossovers, the Peugeot 2008 and 3008. Since then, the French automaker has failed to freshen its product lineup. As a result, its two joint ventures with Dongfeng Motor Co. and Changan Automobile Co. have experienced declining sales volumes.

One reason for the decline is that Chinese consumers change vehicles more often than owners elsewhere, and they are particularly interested in crossovers, which makes newer models more desirable to them.

In April 2017, General Motors launched the all-new third generation 2018 Chevrolet Equinox crossover SUV in China, with kickoff sales off to a good start. The Equinox has held its own in China’s highly-competitive crossover segment accounting for 4,600 deliveries in August, 3,500 in July, 5,400 in June and roughly 4,000 in May. Most recently, Chevrolet introduced the Equinox RS appearance package exclusively for the Chinese market, a first for the brand.

The Buick Envision is by far GM’s most succesful crossover ever with its China sales surpassing 15,000 units in August 2017.

One reason for the enhanced popularity of the Envision versus the Equinox is because of the strength of the Buick brand in China, which was the first brand that GM sold in China when it entered the market 20 years ago. In addition, Equinox sales were temporarily constrained at launch due to product availability in the country, which has since been resolved.

Reflecting the strong popularity of SUVs among Chinese consumers, GM China reported a 42% year-over-year increase in sales of SUVs.

In the first eight months of 2017, GM and its joint ventures in China delivered a record 2,381,834 units.

Cadillac Sales Soar in China

Another brand experiencing an increase in sales in the Chinese market is Cadillac. For GM, it is experiencing strong sales for its luxury vehicles and SUVs, while sales for its small-cars have softened for GM and other OEMs in China.

General Motors said its sales in China rose 12% in August 2017 fueled by strong growth in its SUV sales and the continued success of its Cadillac luxury brand, which saw sales increase to 51% in August 2017 to 15,014 vehicles. For comparison, in the month of August 2017, the Cadillac brand sold 15,016 vehicles in the U.S. In a milestone for the Cadillac brand, China surpassed the U.S. as its largest global market in January 2017 in terms of total sales year-to-date.

Cadillac currently builds the CT6 sedan, the long-wheelbase ATS sedan, XT5 crossover and the XTS sedan at GM’s joint venture with SAIC Motor Corp.

The XT5 luxury crossover continues to lead sales for the brand with 89,111 units delivered worldwide so far in 2017. August was its second-best month in the U.S. with 7,236 units sold.

Another Cadillac model built by SAIC-GM is a longer-wheelbase version of the ATS sedan, called the ATS-L. The longer wheelbase Chinese model has more room in the back seat than the regular ATS, a big selling point in China, which has contributed to its popularity and strong sales among Chinese buyers. Globally, sales of the ATS model grew 8.9% for the month, driven by market share gains in the U.S. and Canada. As in the U.S., the midsize XT5 crossover SUV is selling briskly in China, with nearly 5,000 sold.

GM is also reporting brisk sales of the larger CT6 sedan in China, which was newly introduced last year.

By tripling its China sales in five years, Cadillac has surpassed Lexus, Land Rover, and Volvo to become China’s No. 4 luxury brand in terms of sales volume. Until a few years ago, most Cadillacs sold in China faced a 25% tariff imposed on imported vehicles. Now, almost of the Cadillacs sold in China are built in Shanghai, mostly at a recently opened $1.3 billion GM factory, the company’s hi-tech assembly plant. In addition, local production has made it possible for Cadillac to price its vehicles a little below the German Big Three. Cadillac has also opened hundreds of dealerships in recent years.

Overview of China and its 10 Join Ventures
Chart courtesy of GM.
Chart courtesy of GM.

GM China is a wholly-owned venture of General Motors, which is headquartered in Shanghai. It has 26 plants across China employing more than 58,000 employees. These 26 plants are comprised of 17 vehicle assembly plants, eight powertrain plants, and one component plant. GM China has 10 joint ventures (JVs), for the complete car manufacturing and component and parts manufacturing in China.

SAIC-GM, which used to be named Shanghai GM, is a Chinese state-owned automotive manufacturing company headquartered in Shanghai operating as a joint venture with General Motors. The company had sales of 1.9 million vehicles in 2016.

Another joint venture is SGMW, which is the acronym for SAIC-GM-Wuling Automobile. SGMW is a joint venture between SAIC Motor, General Motors, and Guangxi Automotive Group, which manufactures commercial and consumer vehicles sold in China under the Wuling and Baojun brands.

In addition, GM China also has technology centers and commercial vehicle centers in China. In particular, GM has two R&D facilities in China. “GM China Advanced Technical Centers, which is called ATC, is the most comprehensive and advanced automobile development center in China,” said Brian Luo, marketing support manager for GM’s VSSM China, based in Shanghai. “ATC includes research and development, advanced design, vehicle engineering, engineering, and the OnStar laboratories.”

The first phase of the ATC facility was completed in September 2011. The second phase opened in November 2012.

“As a member of GM’s global engineering and design network, it is developing solutions for GM on a domestic and global basis,” said Luo.

GM China also operates the Guangde proving ground, which is its biggest facility in China. It includes more than 60 kilometers (37 miles) of test track and support facilities that enable it to carry out testing involving 67 different driving conditions in China.

GM China had vehicle sales of 3.8 million units in 2016, which represents almost 40% of GM’s global sales.

Globally, Cadillac sold 32,084 units in August 2017, maintaining a 15-month run of consecutive growth.  The brand is on pace to surpass last year’s total of 308,718 vehicles sold. In August 2017, year-to-date, sales are up 39,354 units compared to August 2016, totaling 221,566 units.

“The transformation of Cadillac continues to accelerate with the globalization of our commercial footprint,” said Cadillac President Johan de Nysschen. “The market share expansion in international markets and the escalation of transaction prices in the United States creates a strong foundation for sustainable growth.”

Buick Launches New Models

As the first GM brand introduced in China, Buick has become a very popular brand in the Chinese market, and it has been the biggest driver of GM’s success in the world’s largest car market.

“The top seller in China for last year was the Buick Envision, which has a stylish exterior design and super comfortable interior. The vehicle provides a very strong driving performance and is well equipped with comprehensive safety features,” said Brian Luo, marketing support manager for GM China. Luo, who is based in Shanghai, joined General Motors in 2008.

“In 2016, the top five best-selling GM vehicles in China were the Buick Envision, Buick GL8, the Chevrolet Cruze Hatchback NB, the Wuling Sunshine, and the Wuling Hong Guang.

In August 2017, Buick sales rose 9.6% to 103,277 units, an impressive number driven by sales of four key models:

  • Buick’s big seller in China is the Excelle GT, a compact sedan mechanically related to the now-discontinued U.S.-market Buick Verano. GM sold over 40,000 in August 2017, up 41% from a year ago. 
  • The new-generation Buick GL8 is an upscale minivan made for the Chinese market. The GL8 was all-new last fall. Its sales in August 2017 were up 125% over the older model a year ago.
  • The compact Buick Envision SUV hasn’t been a huge seller in the U.S., but has been well received by Chinese consumers. GM sold over 15,000 in August 2017. 
  • Sales of the LaCrosse sedan, another Buick that was all-new last year, almost doubled from a year ago to about 8,100 units.

GM China has introduced a wide range of new products in 2017. One new model is the Buick Velite. Another is the new Buick Regal, which was introduced on July 21, 2017. The other new model is the Buick GL8 25S. A new product from SGMW is Baojun 510. It’s a B compact SUV in China. Another model is the Baojun 310W which was introduced in July 2017.

The 2018 Buick Regal made its official debut at the 2017 Shanghai Auto Show. The Chinese version of the Regal retains a traditional four-door sedan layout with a sealed trunk. Photo courtesy of GM.
The 2018 Buick Regal made its official debut at the 2017 Shanghai Auto Show. The Chinese version of the Regal retains a traditional four-door sedan layout with a sealed trunk. Photo courtesy of GM.

SGMW is the acronym for SAIC-GM-Wuling Automobile, which is a joint venture between SAIC Motor, General Motors, and Guangxi Automotive Group, which manufactures commercial and consumer vehicles sold in China under the Wuling and Baojun brands.

Chevrolet sales in China rose to 46,705 vehicles. The big news for Chevrolet in China is the debut of the all-new Equinox crossover SUV, which just began rolling out in the Chinese market. The Equinox has the potential to be a huge hit for GM in China. It’s off to a good start, with over 4,600 sold in August.

The Baojun brand is GM’s answer to low-cost domestic Chinese automakers. It offers affordable models aimed at young families. It’s a big seller, with 82,658 sold in August. Nearly 33,000 sales were of Baojun 510, an affordable compact SUV that had huge sales for GM in August.

For years, GM’s Wuling brand sold small, inexpensive commercial vans to Chinese tradespeople. However, sales of commercial vans have declined as China’s construction boom has faded. In response, Wuling has shifted to emphasize sales of passenger versions of those vans under the Hong Guang nameplate.

Although sales are still recovering —Wuling sold 80,771 vehicles in August 2017 — the Hong Guang lineup sold over 34,000 units. Wuling plans to launch an affordable SUV later in 2017 to help boost sales.

Trends that will Impact Future Fleet Sales in China

China is GM’s largest market in terms of retail sales for the fifth consecutive year and it is an important component in the company’s global strategy.

GM plans to strengthen its core business through global growth initiatives and an aggressive product launch cadence, while continuing to focus on driving cost efficiencies.

Strategically, GM is transforming itself from a traditional automaker into a personal mobility provider. GM’s plans to capitalize on the future of personal mobility were summarized in a 2015 presentation given by GM CEO Mary Barra.

“The convergence of rapidly improving technology and changing consumer preferences is creating an inflection point for the transportation industry not seen in decades,” said Barra. “Some might find this massive change to be daunting, but we look at it and see the opportunity to be a disruptor. We believe our decades of leadership in vehicle connectivity is fundamental to our quest to redefine the future of personal mobility.”

As part of this global strategy, GM China has adopted a two-pronged strategy to succeed in the rapidly changing automotive industry.

The first prong is to strengthen and grow its core business of building and selling great cars, trucks, and crossovers.

The second prong is to define and lead the future of personal mobility through the creation of an entirely new transportation business model, and to lead the development of the technology necessary to support these new business models.

In addition, domestic market conditions will also influence future fleet sales. For instance, the central government of China announced two reforms that will be beneficial to fleet sales in China.

Central Government Mandates Vehicle Reform for State-Owned Enterprises: The vehicle reform mandate for State-Owned Enterprises (SOE) is part of a broader anti-corruption movement in China. The vehicle reform mandate has prompted many SOE companies to revise their company car policies so only a few top managers are now given a company car.

Previously, there was concern that the eligibility criteria to receive a company-provided vehicle at SOEs was too liberal. Who will be impacted by the new SOE vehicle mandate will be mid-level managers, who in the past were provided with a company vehicle and, in some cases, even a driver. With the reframing of the eligibility criteria many of these mid-level managers will no longer receive a company vehicle, but instead will be offered a driver allowance or reimbursement program. The reform is flexible whereby some mid-range managers may instead opt to purchase their fleet vehicle or lease it through a leasing company.

Tax-Free Vehicles for Students Returning from Overseas Studies: The third reform offers Chinese students who have studied abroad the ability to purchase a tax-free vehicle when they return to China. This has the potential to be a significant volume of purchases since more than 300,000 students study abroad each year. When a student returns to China after graduating from a university abroad, they will have three months to buy a tax-free vehicle in China.

Each year, 10,000 students return to China following graduation. These students represent a big group with purchasing power who are becoming a focus for our fleet efforts in the future.

Pharmaceutical Fleets in China

A frequent question about the Chinese fleet market deals with the local pharmaceutical industry. The question is whether pharmaceutical fleets in China will eventually mirror the fleet practices of pharma fleets elsewhere in the world. In particular, will Chinese pharma reps be assigned a company-provided vehicle to call on customers as are their counterparts elsewhere in the world?

Currently, fleet sales are very low to pharmaceutical companies operating in China. Usually, a pharma rep in China is not assigned a company vehicle and instead uses public transportation or motor bikes to meet with customers. The prediction by some fleet observers is that eventually (and gradually) these representatives will begin to expect a company car and not be satisfied with their current transportation options.

Forecast of Chinese Market

The near-term forecast for China’s auto industry is that its growth rate will moderate in relation to prior growth.

In 2018, Beijing will restore the sales tax for vehicles with engine displacements of 1.6 liters or smaller to 10% from 7.5% this year presenting an economic headwind to the Chinese fleet industry. In addition, it is anticipated that there will be new sustainability programs mandated to fleets to reduce automotive emissions. For instance, China has set a goal for EV and plug-in hybrid vehicles to make up at least a fifth of the country’s light-vehicle sales by 2025.

The Chinese government offers generous subsidies to makers of new-energy vehicles. It also plans to require automakers to earn enough credits or buy them from competitors with a surplus under a new cap-and-trade program to boost fuel economy and lower emissions.

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