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Selling cars in China different than U.S.
Tue October 11, 2011
Detroit automakers shift approach to sell cars in China
General Motors now sells more cars in China that it does in the United States. In a few years, it’s likely that will be the case for Ford Motor Company, too.
But selling cars in China takes a different approach than it does in the U.S.
There's much that's familiar at Shanghai Dongchang Fude Auto Sales and Service. There’s the piped in music -- the salespeople hanging out near the front entrance, waiting to grab the next walk-in customer., and the lineup of shiny new cars on the floor.
Customer Eric Liu has his Ford Mondeo in the service shop today. The Mondeo is the Chinese version of the Fusion.
"So I feel this car is very safe," says Liu. "That’s why I choose Ford. Very safe. It’s like a muscle man!"
Ten or fifteen years ago, many Chinese car buyers went for style over substance. If a car had lots of chrome and sex appeal, they wanted it.
That’s changing. Most car buyers in China now have the same demands as Americans. They want safe, reliable and fuel-efficient cars, especially now that a gallon of gas in Shanghai is well over four dollars.
But there’s a key difference when it comes to how a Chinese person decides what to buy. Chinese customers rely on the advice of family and friends much more than Americans do. People want to feel that others approve of their choice of car. So word of mouth almost always wins over advertising. It was no different for Liu.
"My colleagues, they all use Ford car," says Liu. "So I get feedback from my colleagues."
Liu also paid for his car up front. That’s pretty typical. Only about ten percent of Chinese customers use loans to buy a car.
There are good economic reasons for that. Mary Gallagher is Director of the Center for Chinese Studies at the University of Michigan. She says Chinese people are extremely reluctant to go into debt for anything. That’s because there’s almost no social insurance safety net in China. People have to save for their own retirement and they have to pay for their own health care.
"Most people in China, when they get sick or are preparing for surgery or have an emergency, they go to the hospital with cash," notes Gallagher.
Chinese people are inveterate savers. Most people save up to 35 percent of their income, to prepare for emergencies and the future. So buying a car with cash is not that much of a stretch. Dealerships are used to people showing up with a security guard and a bag of cash when it’s time to pick up their new car.
Dealerships in China also have to deal with a lot more new drivers. Chantel Lenard is Ford’s head of marketing for Asia Pacific and Africa. She says selling cars with sophisticated technology can be a challenge in a country where almost no one grew up riding in the back seat. Telling a Chinese customer that a car has blind spot monitoring can get you a blank look.
"So many of the buyers are first time buyers. 70 percent are first time buyers," says Lenard. "If you’ve never driven a vehicle, you don’t know what a blind spot is! So part of the process here is educating them on why they need these technologies."
Chinese people don’t need to be taught how to get a good price. Zhou Hui Cheng is General Manager of Dongchang Fude Auto Sales. His face breaks into a broad smile when he's asked if Chinese customers haggle.
"Haggling here is perhaps even more vicious than it is in the United States," says Zhou Hui Cheng. "They will not only haggle here, they will go to several Ford dealerships and see where they can get the best price."
But, if there's not a big difference in the price, he says the customer will usually buy the vehicle from the dealership that has the best reputation.
Zhou Hui Cheng says his salespeople encourage customers to get loans through Ford Credit.
It would certainly be better for business if more people took advantage of car loans. But China’s cash economy isn’t likely to change overnight.
Even so, the growth of the middle class alone will ensure that China remains number one in car sales in the future. Ford Motor Company is betting on it. Already, one in six of its car sales are in China. By 2020, that number could be one in three.
Help us cover this story: Have you traveled to China? Tell us about your experience.