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China will drive over one-third of global growth in the auto sector
China’s automotive sector grew at a compound average rate of 24 percent a year between 2005 and 2011 and, in 2010, overtook the United States as the largest single-country, new-car market. We forecast that the growth of China’s auto market will slow to an average of 8 percent a year between 2011 and 2020 – still very fast by developed-world standards. Sales are forecast to reach 22 million in 2020, bigger than either the European or North American markets.
As the years pass and the market matures, Chinese consumers are growing more sophisticated about cars and their tastes are evolving. Many have already purchased a first, entry-level car and will be ready to upgrade to newer and better models. To succeed in this more demanding environment, automakers must better understand what their customers want, and how their expectations differ from region to region and from auto-body-type segment to segment. In this way, the Chinese car market is becoming more like that of North American, Europe, and Japan and perhaps even more complex, given the many regional and segment differences. To address the need for deeper insights, McKinsey has developed detailed demand forecasts through 2020 of Chinese auto customers by region and segment. In the analysis, we identified fundamental drivers for demand growth such as increasing urbanization, rising household income, low car penetration rates, and infrastructure improvements.
The following trends will shape the Chinese auto market in the next 10 years, according to our analysis:
Going bigger: Sales of sport utility vehicles (SUVs) will triple, although sedans will remain the largest segment
Trading up: There will be more second-time buyers, and they will buy more high-priced cars
High volatility: The volatile growth rates for new cars observed over the last two decades are likely to continue
Regional differences: Consumer behavior by region and car-model preference will vary greatly
Our findings, detailed in this report, have significant implications for automakers. For example, they will have to place their bets on specific market segments and decide in which city clusters they should focus their efforts to take advantage of the “going bigger” and “trading up” trends. They will also have to be agile and flexible to react to the market volatility.