One country, two societies. China is world’s most populated country and soon will be the largest economy. Its accelerated economic growth has made of it a big market where everybody wants to be. Automotive world is part of this boom doing both, creating better economic conditions to Chinese, and getting big profits from the business in that country. It is why most of all carmakers operate in China, not only because it is now the world’s largest car market, but because there is still a big potential for more sales. But China has two faces: the modern and rich urban part and the old and poor rural one. They belong to the same country but they are as different as two diverse societies that have different requirements and prospectives. Even Chinese authorities divide its social and economic reports in two for Urban and Rural China. A quick outlook (because there are several studies about it) of rural China, which represents 50% of total population (1.3 billion inhabitants), shows that it is far behind the rich China in terms of income and development. According to China Statistical Yearbook 2011, there are 414 million rural Chinese citizens working, wich is 2.85 persons working per Rural household. Compared to Urban indicator, more people of a rural household have to work than in the cities (1.49). It also means that there are less dependent people per employee (laborer) in the countryside than in the cities. In other words, income per person in rural China is much lower than in the cities, so more members of a household need to work if they want to survive. In terms of income the gap is enormous: urban household income is 3.22 times than the one of rural households, and their expenditure is 3 times bigger. It explains why the urban China is that developed and why so many rural Chinese continue to move to the cities to find a job and earn more money.
This situation is a real challenge for Chinese authorities and its future economic stability, as this part of the population can’t continue to live in these conditions. China knows that something must be done in order to ensure future growth and social equilibrium. That is why central government has been working hard on several development plans in order to improve social conditions and therefore the economy of rural China. 10 years ago, the difference between the Urban and rural household’s Engel’s coefficient (which suggests that consumers increase their expenditures for food products (in % terms) less than their increases in income)was 10 points, while in 2010 it was 5.4 points, which means that both Chinas are improving their standard of living, but specially rural China. In its five-year plan the government focuses on economic growth based on the rise of income of the poorest population. For that, the authorities want to boost the production of food which will be the base for more consumption of rural China. But more production requires better connection to the rest of the world. According to Chinese government’s agency press, in the last years more than 1 million kilometers of rural highway has been built or upgrade. By the end of 2007, 98.5% of villages and towns had been connected by highways nationwide. Certainly a lot has been done but there are still many problems to be solved. As a matter of example, rural people’s access to information is still limited: in 2010 there were only 10.4 computers per 100 households, compared to 71.2 in the city. Meanwhile there is still a big part of rural population with very low-income: 47.6% of them have annual per capita income less than 5.000 yuan (USD$800), which is really bad and means million of households under poverty line.
The previous information and future estimations of car industry in China, aim to be the base for what Fiat-Chrysler should do in China in the next years. According to McKinsey & Company, a global management consulting firm, Chinese car market will reach 22 million units by the year 2020, with annual average growth of 8%. It means 8 million more cars than the ones sold in 2011. The reason for this growth is explained in more demand coming from small cities and more SUV sales. And those are the key factors that Fiat should consider in its strategy for China in the next years. The report explains that by the year 2020 small cities will count for 60% of the whole market, up from 40% in 2011. They don’t explain what they intend for ‘small cities’ but certainly many of them will come from current rural China. The economy in these regions will grow that fast that by the end of the decade they will have a relevant position in the car market. The rising economy will mean more money to spend in cars. The analysis shows that SUV segment will experiment the highest growth and by 2020 there their sales will triple from 2011 results. It means that in 8 years Chinese will consume around 5 million SUV yearly. Sedans will continue to dominate the market (70% of it) but larger versions in all segments (including the low ones) will be the most popular. Chinese (both, urban and rural) will have more income and many will want to buy or upgrade their cars with more sophisticated cars.
Then the right strategy should take into account these facts and Fiat-Chrysler has everything to be successful in 2020 Chinese car market. First of all the alliance is full of brands that go from budget segments up to ultra-premium sedans and sport cars. Chinese consumer prefers larger cars. In 2011 40% of total sales corresponded to C-Segment, most of them sedans. A-Segment counted for only 5% of sales while B-Segment for 14%. SUV counted for 13%. Fiat’s move is now concentrated in the production of ‘C-Sedan’ Viaggio while they import all the other models (500, Bravo, Freemont, Chrysler 300, Town & Country, Dodge Journey, all Jeep range, and of course Ferrari and Maserati). But they should involve the whole range of products to be produced locally focusing on 3 major facts: 1) a budget range (small Fiats) for the rising economy in rural zones; 2) a large sedan range (composed by the Viaggio as the entry option, larger ones coming from Chrysler and Dodge, followed by future sporty Alfa Romeo ‘D’ and ‘E’ sedans, and closed by the big Maseratis). 3) the whole SUV portfolio coming from the successful Jeep and completed by the luxury Maserati and Alfa SUVs. Fiat and Chrysler have the brands and the products for getting a big part of what will happen by 2020 in Chinese market. Those living in small cities will soon be part of economic boom and they will be able to buy their first car (budget one), while those living in larger cities with higher income will want to upgrade their car and buy better quality and more sophisticated products. Most of them will move to SUV segment. Fiat-Chrysler can be an ideal option for all of them, and according to latest sales data coming from China, it seems they had a pretty good start with the Viaggio.
More than 6 thousands units were already sold in the country from mid-September till now. It is more than what analysts and Fiat itself expected. Jack Chang, Fiat’s leader in China (a real car man and not a politician as other industry leaders), said the plant was producing 200 units per day and they expect to sell 15.000 units by the end of this year, which is more or less the quantity sold in the US market for the Dodge Dart, its twin, since July till now. Fiat Viaggio’s sales are not bad at all specially taking into account the fact that the image of Fiat as a brand is not the best among Chinese consumers (Fiat failed twice in the past) and the awareness can be strongly improved as there is still a low number of dealerships all over the country. Some one could explain this success to what’s going on with Japanese brands and the big fall of their registrations. There may be some impact, but according to Chang, the Japanese’s share has not been taken from anyone. Fiat’s goal is to increase its share in ‘C-Sedan’ segment with the Viaggio with a great product and optimal service 24/24, with an efficient call center and a private club for Fiat owners. All of this is part of the alliance goal of increasing its share in Chinese market. Jeep is also part of the success with more than 33.000 units sold in January-September 2012, more than double 2011 result. This spectacular growth is even better when thinking that all Jeep products are imported and therefore their final prices are much higher than locally produced rivals. Future production is expected in the next years. After looking at the other China, and making use of the great potential brands as Jeep, Alfa Romeo, Maserati, Chrysler and Fiat have, is when Fiat-Chrysler will be able to have a respectable share in the world’s largest car market.