China's struggling automakers jump on SUV boom

Published on NewsOK Modified: May 7, 2013 at 7:38 pm •  Published: May 7, 2013

SHANGHAI (AP) — BYD is known for electric cars but this year's flagship model is the S7, a gasoline-powered SUV. It comes with an interior air purifier, radar to help with backing and digital TV. An onboard hard drive can hold 1,000 films.

This is China's Year of the SUV. Whatever their specialties used to be, automakers ranging from global brands to China's ambitious rookies are scrambling to cash in on the explosive popularity of sport utility vehicles.

"We are selling vehicles that have extensive technologies," said Isbrand Ho, BYD's director of export sales. "These are all on ... premium models for European marques but we are making it available to the everyday person."

The SUV boom clashes with Beijing's efforts to push automakers to develop electric cars and to sell smaller vehicles to help curb smog and demand for imported oil. But the SUV's image of safety appeals to prosperous Chinese drivers who face chaotic city streets while electrics from BYD and other producers struggle to attract buyers.

The fatter profit margins for SUVs are a financial lifeline to a Chinese industry that is being squeezed as global brands make inroads into their market for smaller cars.

"You've got almost everyone targeting SUVs," said analyst Namrita Chow of IHS Automotive.

SUV sales in China rose 20 percent last year to 2.5 million vehicles, more than double the 8 percent growth of the overall auto market, according to LMC Automotive. SUVs made up 18 percent of all vehicles sold.

That market share could rise as high as 25 percent in coming years, according to Yale Zhang, managing director of Auto Foresight, a research firm in Shanghai. That would be double the size of SUVs' 12.5 percent share of the U.S. market last year.

Overall, Chinese drivers bought more than 19 million cars last year while Americans bought 14.5 million. The United States still is the biggest market in financial terms, though China is expected to pass that soon. By 2020, automakers and analysts expect China's annual sales to rise from current levels by 13 to 14 million vehicles — more than all growth in the U.S., Brazil, India, Russia and the Middle East combined.

In China, General Motors Co. expects annual SUV sales to reach 4 million by 2020, said Bob Socia, president of GM's Chinese arm.

"We are focusing on two key markets — luxury cars and SUVs," said Socia. "They used to be considered niche markets but now they are mainstream."

Global automakers are redesigning SUVs for China with smaller engines in response to government taxes based on engine size.

Ford Motor Co. plans to manufacture two of its four SUVs, the EcoSport and the Kuga, in the southwestern city of Chongqing. Its Edge SUV will be imported from Canada and the Explorer from the United States.

"We now have our full range of the SUV family here," said David Schoch, Ford's president for the Asia-Pacific region.

Italy's Fiat SpA, a latecomer to China, is hoping an SUV will help it gain a foothold in a market where it set up its first joint venture just three years ago. The Freemont, based on the Dodge Journey, was unveiled at last month's Shanghai auto show.

Also at the auto show, global automakers including Mercedes Benz and Nissan and local brands such as Geely Holding Group, which owns Sweden's Volvo Cars, and Great Wall Motors Co. showed new SUVs or SUV concept vehicles.