Chinese brands struggled at home in 2011, losing market share to foreign brands. The outlook is rather bleak, so the answer to some is to expand outward. They have been slowly making inroads into new markets everywhere in the world. It goes without saying that the most important foreign market would be the United States. But arguably the next one in line is Brazil.
China and the U.S. are the two largest car markets in the world, by a wide margin. The third one is Japan, which is notoriously closed to imports. Hyundai and Kia, which expanded rapidly around the globe in recent years pulled out of Japan in 2009 after eight sluggish years. Last year, the share of foreign brands rose to the highest in recorded history: 7.7%. Combined with an aging and shrinking population, it’s probably not worth the effort.
Brazil is the world’s fourth largest market, having recently just surpassed Germany. More than 3.4 million cars and light commercial vehicles were sold in the South American country last year. A growing population, rising economy and a relatively low motorization rate (333 cars per 1000 inhabitants) make theirs a very promising market. Analysts predict Brazil will overtake Japan in 2016 and become the third largest market.
Size is not the only factor. Car prices in Brazil are notoriously high. Take the world’s most popular car, the ubiquitous Toyota Corolla. In Brazil, it is sold from 64,000 to 90,000 Brazilian reals, which are equivalent $37,230 to $52,360 USD. The Corolla’s MSRP in the US is $16,130 (base). Not to mention 6 airbags, ABS+EBD, ESC, cruise control are all standard in the US version. Some of these are missing even from the $52k Brazilian version.
The Chinese are still competing on price, but that’s easier to pull off when prices are sky-high. So they too, are selling cars at more than twice their suggested retail price in China. Here’s a price comparison between with prices of the four most popular Chinese models sold in Brazil:
|Car||MSRP in China, CNY||MSRP in China, USD||MSRP in Brazil, BRL||MSRP in Brazil, USD||Difference, %|
|JAC Tongyue RS/J3||Â¥ 57,800||$ 9,173||R$ 37,900||$ 22,046||240.3%|
|Chery QQ||Â¥ 41,800||$ 6,634||R$ 23,990||$ 13,955||210.4%|
|JAC Tongyue/J3 Turin||Â¥ 57,800||$ 9,173||R$ 39,900||$ 23,120||253.0%|
|Chery A1/Face||Â¥ 56,800||$ 9,014||R$ 31,900||$ 18,556||205.9%|
With profit margins razor thin at home, JAC and Chery must be enjoying their success. Other Chinese automakers have probably noticed this as well, and are all eager to enter this highly promising and profitable market. Stay tuned for a history of Chinese brands in Brazil, plus some sales figures.