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Automakers Rush to Feed China's SUV, Luxury Hunger

May 23, 2016
Annual sales in China are forecast to plateau at about 30 million in five or six years. SUV and luxury sales could level off sooner. When that happens, automakers may lack models in other segments of a highly competitive market, analyst Keith Lomason says.

BEIJING – There is a lot of commotion these days surrounding China’s auto market and its future in a slowing economy. But the mood at last month’s Beijing auto show was upbeat. Automakers remain confident there are plenty of sales to be had there.

“Despite all the headlines about the turmoil, the market continues to grow, and grow fast,” Lars Danielsson, senior vice president-Asia-Pacific for Volvo Cars tells WardsAuto.

To be sure, China’s auto-market growth is outpacing those of many developed markets. But like some mature markets, such as the U.S., China’s growth is not evenly distributed.

Growth in China mainly is being driven by SUVs and luxury vehicles. With analysts not seeing that as an immediate problem, automakers are racing to add models in those segments.

“It is not dangerous yet,” says Keith Lomason, China president for market researcher JATO Dynamics. “Those two segments can keep the market growing at 4% to 6%.”

However, the entire market likely will reach a saturation point in three to five years, he says. “Who knows what segments will be hot at that time?”

Sales of passenger vehicles in China in the first four months of 2016, including SUVs, rose 6.8% from prior-year to 7.45 million units, according to the China Association of Automobile Manufacturers. The market is expected to grow at least 5% for the full year.

Luxury-vehicle sales in the first four months rose 13.5% to 401,361 units, according to Shanghai-based consultancy Auto Foresight. SUV sales jumped 46.7% to 2.6 million units.

Volvo’s business in China mirrors those trends. Its sales grew 13.4% year-over-year to 19,636 in the first quarter. Its best-seller was the XC60 small SUV, which benefited by also slotting in the luxury segment. It was followed by the S60L, a longer version of the S60 sedan produced in China with more rear legroom and second-row amenities.

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