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The genuine development era of China’s automotive industry occurred in the 1990s. It predominantly relied on the advancement of the automotive finance sector. In 1993, Beifang Binggong Automobile Trading put forward the notion of installment loan for vehicle purchase; in 1998, the People’s Bank of China promulgated the “Regulations on Automobile Consumption Loans,” after which the amount of automobile consumption loans in China increased at an annual rate of over 200%. Since 2009, China has consecutively held the top position in global automobile production and sales for nine years. In 2017, the production reached 29 million units and the sales reached 28.87 million units.
The Current Situation of Automobile Ownership in China
The automotive consumption market in our country is still at a rather primary stage. In 2017, the per capita vehicle ownership in China was merely 140 vehicles per 1,000 people, less than one-sixth of that in the United States and one-quarter of that in Germany. At present, the replacement rate of used cars in China is approximately 35%. The traditional car purchasing and using habits of Chinese people involve buying a new favored car and using it until it becomes unusable, with relatively few cases involving car rental and the purchase and replacement of used cars.
The Profit Source of China’s Automotive Industry
In the mature automobile markets of some developed countries, the automobile aftermarket serves as the main profit source. Nearly 60% of the profits arise from the automotive service sector, namely the automotive aftermarket. The remaining profits are partially attributed to those from automobile manufacturing and sales, accounting for 20% of the entire industry chain’s profits, and the other part is from the production and sales of auto parts, constituting 22% of the profits. For the mature automobile market, the profit of the aftermarket not only takes up a considerable proportion but also has the highest profit rate within the automotive industry, with the overall profit rate reaching 40%-50%.
Currently, the main source of profit in China is the sale of complete vehicles, and as the growth of car sales slows down in China, it will also develop towards the automotive aftermarket like developed countries, such as second-hand car, rental, automotive interior or maintenance.
Development Potential Factor of China’s Automotive Industry
● The Increases of National Consumption Level
With the continuous improvement of living standards, China has started to undergo consumption upgrading, and the automotive market will witness greater growth as well. This leads to the greater popularity of automobiles and an increase in the number of cars per thousand people. In 2017, China’s automobile production reached 29 million units and sales reached 28.87 million units. By 2030, the number of cars per thousand people in the Chinese market will reach 300 or above. The growth and popularity of automotive demand will promote the rapid growth of automotive finance.
● The Consumption Concept of the Generation after 90s has Improved
The generation after 90s is gradually emerging as the main force in the automotive consumption market. Their careers are at the nascent stage, yet they hold more avant-garde consumption notions. As they turn into the mainstays of their families, automobiles will be their prime choice. For tasks like picking up children and the elderly, etc., automobiles will become indispensable transportation means.
● Automotive Aftermarket Development
As brand competition in the automotive market intensifies and the profit of new cars declines, dealers are gradually shifting the focus of profit to the automotive aftermarket business.
● Support from Government
The automobile industry is a pillar industry of the country, with an annual market size of 2 trillion yuan, which is relatively large compared to the GDP of more than 80 trillion yuan. The employment, consumption and capital it drives have a great impact on society.
● Automobile Upgrading, High-tech, High-performance More in Line with Modern Needs
The popularity of new energy vehicles — autonomous driving, positioning system, lower consumption, more comfortable driving experience and lower price levels are stimulating the development of the automobile industry.
● Diversified Auto Finance Options
More and more commercial banks, such as auto finance companies, financial leasing companies, Internet auto finance companies, auto insurance companies, etc., have joined, helping to improve consumer purchasing power and expand the auto consumer market.
● Unstable International Trade
The trade war between China and the United States has led to uncertainties in many industries, especially the pillar industry of China’s automotive industry. The America first principle will lead to the United States forcing China to open its automobile market, which will inevitably lead to intensified market competition, and some automobile companies will suffer a great impact.
● The Increase of Economic Pressure, the Compression of Automotive Consumption Space
Currently, the housing price in China is high, and the generation of after 90s is burdened with significant debt pressure. Automotive consumption is a type of consumptive expenditure. Under certain pressure, it will cause consumers to compress or postpone automobile consumption.
