August 9, 2012 Beijing; Nielsen, a leading global provider of information and insights into what consumers watch and buy, and the China Association of Automobile Manufactures (CAAM), havejointly released a white paper that offers a roadmap to the opportunities opening up in China’s fast-growing auto industry, and insights into how to capture them.
The white paper ‘Chinese Automotive Consumers In Tier One Cities” was launched today at CAAM’s automobile industry information press conference. It focuses on auto electronic features, used vehicles, trade-in services and auto loans (Figure 1).
According to the White Paper, repeat purchase account for 58% of total new vehicle sales in China.
Among these, multiple-car buyers (owning more than one car) account for 35% while trade-in buyers (replacing old car with new) account for 23%. Moreover, they appear quite different from the first-time buyers. In particular, most repeat buyers are either owners or senior managers of private companies. They are in the rising stage of their career and family life, and compared with first-timer buyers, are more mature and have higher incomes. About 41% of trade-in buyers are post-70s consumers whose average monthly household income is CNY15,700 while 44% of multiple-car buyers are post-80s whose average monthly household income is CNY17,800 (Figure 2).
Vehicle preference has not seen significant difference between first-time buyers and repeat buyers when the purchase budget is less than RMB 120,000. However, if the budget rises up to RMB 120,000 and above, it shows distinctive differences. Repeat buyers prefer vehicles priced between RMB 120,000 and 300,000 (including C Segment cars, e.g. Excelle and New Bora; D Segment cars, e.g. Camry and Accord) and they also show higher preference to the luxury vehicles priced RMB 500,000 or above. Meanwhile, treat-in buyers are more interested in SUV of different prices levels.
Regardless of the vehicles they currently own or plan to buy, safety is always what repeat buyers most care about. However, the differences are that when purchasing the first car, consumers care more about fuel efficiency and economy; when purchasing the second car, they care more about comfort, quality, and space.
“Although repeat buyers are still relatively young, they already have developed personal preferences for specific functions through their previous purchases,” Nielsen China Vice President Georgia Zhuang pointed out, “Auto companies will have a better chance of succeeding if they can reflect a higher level of safety, comfort, quality and space in their product design, and take advantage of car owner clubs and self-drive tours to market those functional advantages.”
Safety technologies and powertrain systems attract the most purchase intention and price willingness among all auto electronic features.According to the White Paper, among 12 major feature categories, the protective safety system receives the highest consideration rate of 14%, followed by the braking system of 12%, and with fuel-efficient engine, automatic transmission and proactive safety system all of 10%.
When respondents were asked about how much they would like to pay for their ideal electronic features, the amount increases with their feature preference. Advanced engine technologies and safety systems at CNY 26,737 and CNY 20,657 respectively, receive a much higher price expectation than the other categories.
The research indicates that consumer preferences for electronic features differ by age and vehicle segment. The protective safety system (e.g. front dual airbag, head airbag, side impact beam, etc) receives the highest intention as a whole, followed by the braking system. Post-80s consumers show a higher interest in automatic transmission, while post-90s consumers put a greater emphasis on proactive safety system (e.g. ABS, automatic brakes, night view assist, pre-crash warning). Among all vehicle segments, C segment vehicle consumers are more interested in automatic transmission, D segment consumers in telematics, and E segment and SUV consumers in keyless Entry & Engine Start.
“Currently the penetration rate of some advanced safety and power systems on medium- to low-priced vehicles is quite low. However, consumers show a very high willingness to buy these systems. If manufacturers can further digitize their entry-level models, it will help change consumers’ purchasing behaviors and drive them to consider a better value but smaller-sized car” Dong Yang,Executive Vice Chairman and Secretary General of CAAM said.
Used car purchase intention has reached 31%. Consumer needs and preferences are polarized across price and vehicle segments.
In the past decade, the used car market exceeded 4 million with an average yearly growth of 25%. Going forward, the growth momentum of the market is expected to continue. According to the White Paper, 31% of car intenders are willing to consider used cars. Post-70s and post-80s buyers represent the highest potential used car demand. Moreover, owners of cars priced less than CNY 80,000 and more than CNY 500,000 have the highest purchase intention.
For those considering used cars, price and vehicle age are the two most important factors. Entry-level consumers place higher importance on the convenience of after-sales service; medium-priced car owners focus more on residual value; luxury car owners have a wider range of considerations, including original source of vehicles, maintenance record, etc.
Nowadays, major auto manufacturers have launched certified used vehicle sales and service channels. However, transactions with friends and acquaintance are still the most frequently used sales channel. Besides, entry-level car owners are more willing to go to the used car trade market. Used car dealers authorized by manufacturers are preferred by medium-priced and luxury car owners.
Trade-ins are another increasingly important mode of new car sales, especially in first-tier cities where purchase restriction is executed. According to Nielsen research, 31% of consumers are willing to trade in their old vehicles for new cars. Their intention to trade-in goes up with their vehicle segment. SUV owners show the highest intention, 40% of the total.
26% of potential car buyers are willing to consider auto loans, significantly exceeding the current 9% actual rate.
Based on Nielsen’s analysis, the auto loan market is expected to rise to CNY 400 billion in the next five years, with 26% of consumers showing a high intention to buy a car with a loan. Among all the car intenders, males and post-80s consumers are most willing to use a loan, while 35% of post-80s consumers and 28% of post-90s consumers show an interest in the auto loan. In contrast, only 18% of post-60s consumers and 3% of post-50s consumers expressed interest.
Among all the auto loan providers, national commercial banks are the most preferred. Luxury car buyers tend to choose auto finance companies, while medium-priced car buyers and others prefer locally-based commercial banks.
“Both commercial banks and auto finance companies see the expanding auto finance market”, Georgia Zhuang concluded, ”The financial provider who can best seize the opportunity will be those who can provide the most flexible down-payment, interest rate and repayment methods and can address young consumers’ preferences and demands. Auto loan services should not only ease consumers’ funding pressures but also satisfy their needs for other shopping purposes.”
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