Chinese Buyers Preferring Foreign Brands Over Domestics

It appears that one of China's main strategies for boosting its domestic auto industry is failing at least for now. Domestic market share for Chinese auto brands has dropped 25% in the past two years. China currently has 171 domestic auto brands and most of these will probably go out of business in the near future as foreign automakers push deeper into the country. 

China's automotive strategy forced foreign automakers to partner with domestics if they wanted to build cars in China or face hefty tariffs. When the foreign automakers started business in China, they focused on specific regions of the country to establish themselves. VolkswagenVolkswagenGermany, 1938 > present98 models
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has been strong in northern China with its partner SAICShanghaiChina, 1958 > 19792 models
. For the most part North American and European automakers focused on the north, and Japanese automakers focused on the south.

However, as competition stiffens, these spheres of influence are crumbling. NissanNissanJapan, 1932 > present159 models
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is building a factory in northern China with Dongfeng that will take on VW and GMGMUnited States of America, 1998 > present8 models
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. 

While the partnering plan was supposed to give Chinese automakers access to advanced technology that would take years to develop by themselves, foreign automakers have kept that tech close and have been unwilling to share. This has lead to a market where advanced foreign cars are competing with comparably basic Chinese offerings. Being state-owned, many of the Chinese domestic automakers are focused more on volume and high employment than technology. The entire Chinese car market employs 11% of the country's workforce. 

The problem is not just in production; it is also in the dealer networks. Foreign automakers have invested heavily in building dealers in China. Chinese automakers due to their relatively small size and communist government do not have the resources to compete. 

Consumers see the disparity in quality and tend to choose foreign cars. Foreign automakers and their joint ventures hold 63% of the Chinese market, and domestic automakers have 37%. In January 2010 Chinese domestic automakers had 49.2% of the market. 

Some of China's automakers are beginning to export their cars. Russia and Brazil are becoming popular markets for Chinese cars, but they are also trying to break into the Australian and African markets. 

The future for Chinese cars appears to be a few large automakers. The government plans to revoke the permits of companies that produce less than 1,000 cars for two years in a row. 

Nissan Expanding in China to Fight VW and Toyota

Source: Automotive News Europe