Gauging Growth in the Middle Kingdom

MAY

2012

Renault-Nissan Alliance Team

Gauging Growth in the Middle Kingdom

In a sign of just how central China has become to global automakers, Infiniti this month opened its new headquarters in Hong Kong in part to be closer to its second largest market after the U.S.

In addition to this, Dongfeng Motor Co., Ltd and the City of Xiangyang recently announced that two Infiniti models will be manufactured locally at the Xiangyang plant starting in 2014.

The Infiniti brand continues to strengthen its product lineup and expand its sales network to satisfy customers in the growing Chinese luxury segment.

Yet with industry growth in China lagging behind the stellar performance of recent years, surging sales can no longer be taken for granted as passenger-car sales inched up just 1.9% through April.

At Infiniti parent Nissan, CEO Carlos Ghosn argues that a period of more restrained expansion could be a good thing.

“We, frankly, are very comfortable with a 5% or 6% increase in the market,” Ghosn said at Infiniti’s new office opening on May 22.

“It allows us to do a much better job in terms of growing our presence and, at the same time, cultivating a great customer experience at the level of the retail network, increasing capacity of production where we can do it in a way which is very cost effective, very investment effective and with extreme care in terms of quality and reliability.”

Nissan Motor Co. CEO Carlos Ghosn (third right) at Infiniti's Hong Kong opening

It helps that Nissan, which increased sales 13.6% during the first four months of 2012, outpacing the market and winning share from rivals.

Others may be less fortunate, says Deutsche Bank analyst Kurt Sanger.

“You’re going to get segmentation of winners and losers in China as growth normalizes to the 5-10% range, unlike when everybody was growing in the heyday of 30-35% growth,” says Kurt Sanger, auto analyst at Deutsche Bank in Tokyo. “Execution on product, execution on brand, and really critically finding the new customers in places is going to really be part of the winning formula for anyone looking to succeed in China.”

Another possibility is that China surprises on the upside—a regular occurrence over the last decade and one reason auto sales globally are higher than ever.

Donald M.T. Yip, CEO of Dah Chong Hong Holdings, whose firm’s dealership arm sells several global auto brands in China as well Nissan and Infiniti in Hong Kong, says the Middle Kingdom may outperform expectations.

“Last year, growth was single digit and this year as well, but you look at the market itself and I would say the average ownership per capita is still quite low, ” Yip said. “I see the market continuing to grow. I would say for the next five years the average figure will be around 15%.”

Donald M.T. Yip, CEO Dah Chong Hong Holdings

Little wonder that, even in uncertain times, the world’s carmakers continue to spend big on products and plants in the world’s largest market.