How Chinese buy Cars

From Forbes...

How China Buys Cars
Shu-Ching Jean Chen 07.31.07, 11:52 AM ET



Chinese car buyers do not follow conventional wisdom when it comes to making purchasing decisions. They go with word of mouth and, surprisingly, the Internet and auto shows.

In this fast-growing market that is now the world’s second-largest after the U.S., potential car owners have chosen to ignore traditional modes of advertising, such as TV commercials or magazine and newspaper displays.

They also instinctively distrust car dealerships, most of which are staffed with inexperienced managers who, like 75% of the Chinese car owners, are for the first time in their life enjoying the opportunity to own an automobile, let alone trying to sell one.

In a new survey issued this month, TNS research and KPMG found that, more than anything else, Chinese car owners turn to family and friends when making car purchase decisions, with more than 40% of respondents saying that advice from familiars was the most credible source of information. The Internet, a popular forum for Chinese public to air personal opinions and grievances in blogs and chatrooms, ranked second, with more than 30% of those polled citing it as a credible source.

“Chinese car buyers are less experienced than their counterparts in a developed market. That’s why they need so much recommendation and advice,” said Klaus Paur, Shanghai-based automotive director at TNS China, “Word of mouth is also important elsewhere, but it is extremely important in China.”

By extension, the Internet is a platform for amplifying word of mouth, given the proliferation of blogs and easy availability and the transparency of information. “Information spreads in blogs quickly,” Paur said, “It’s a very powerful communication tool.”

Also, illustrative of the unique Chinese craving for a tangible buying experience, respondents ranked auto shows as the third most credible influence on their car-buying decision, with close to 30% citing them. Their popularity means that ten of thousands of Chinese buyers swarm not just the top international auto exhbitions in Shanghai and Beijing but the frequent auto shows in second-tier cities across the nation. There, they compare a full array of latest models from all manufacturers, conveniently displayed right before their eyes.

Unfortunately for automakers who entrust their marketing efforts in China to traditional channels, promotional activities considered valuable elsewhere, such as sports sponsorships, billboards, radio or TV commercials and dealer promotions scored a dismayingly low 5% in influencing a car-buying decision, the survey said.

The cost of rolling out an advertising campaign nationwide through customary means such as local television could also prohibitively high, given the extreme fragmentation of the Chinese media industry across provincial lines.

In a related trend, the survey found more than 90% of Chinese car owners continue to pay for their purchases in cash, even though as many as 25% have access to financing.

Car owners in general also do not place much stock in brand loyalty, though the extent of their detachment is more troubling for local brands, whose car dealership service is presumed to be less satisfactory than those run by an overseas competitor.

This trend should continue to support foreign manufacturers, such as market leaders Volkswagen (other-otc: VLKAF.PK - news - people ), with a 17% national market share, Shanghai General Motors (nyse: GM - news - people ), which has 10%, and Beijing Hyundai, with a 7% share.

Paur also observed a general preference in northern part of China, particularly in the nation’s biggest car market, Beijing, for larger vehicles than their compatriots in the south choose. Northerners, who are behind their affluent southern cousins in terms of the sophistication of their car-purchasing behavior, tend to associate size with the prestige of social status.