March 22, 2006

Is China ready for a nationwide auto club (AAA)? Me thinks it is…

Filed under: Automotive — Administrator @ 8:02 pm

China Association of Automobile Manufacturers reported a jump of 59% in February’s vehicle sale year-over-year (yoy) to 528,100 units. Sales of “made-in-China” autos jumped 51% (yoy) to 480,000. Passenger vehicle sales popped 68% month-over-month (mom) to 763,600 units (total year to date 2006 sales). On the back of these results, we feel comfortable with our full year 2006 automotive sales estimate of 9 million units.

The auto industry in China, long an export play, is finally shaping up to be somewhat of a domestic play as well. When we first started researching this industry in 1992 it was very difficult to see where small foreign investors (ex-multinational auto manufacturers) would fit into the mix – in other words, how do we get rich from cars in China?

Of course, this was before the Internet, so what seems obvious today (“er, why don’t you just build a community site like Chinacars, or something, it’s like a proxy on the entire industry…”) wasn’t so clear back then – the only realistic opportunity that came to mind was rolling out a China version of American Automotive Association (AAA). The downside was, well, it was like, 1992/94, and regular mainlanders didn’t actually own a car (oh, and did we mention there were no street maps or tow trucks?) or that most drivers didn’t really have anywhere to go (or that motor insurance was like, well, non-existent).

What a difference a decade makes, eh? From1990 to 2004, China’s automotive market expanded by 35% per annum; there are an estimated 27 million private cars on the road in China – the ownership by location breakdown is as follows: Beijing 22%, Guangzhu 14%, and Shanghai 8% (source: AC Nielson, 4/05). Motor insurance premiums in 2005 topped US$6 billion while after-sale auto care/repair came in around US$5 billion.

On the back of this growth are gaps, massive service gaps to be precise; yet holes that a nationwide AAA sort of business would resolve very nicely, yeah?

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