SHANGHAI -- On the jam-packed elevated highways of China's commercial capital, the big sedans that once dominated the local car market are sharing lanes with a growing number of compact upstarts.
Demand is shifting away from big sedans long favored by government buyers and the upwardly mobile to economy models popular with families getting their first cars.
New entrants -- both homegrown and Chinese-foreign joint ventures -- are giving serious competition to established joint ventures such as those of General Motors Corp. and Volkswagen AG. Profits are sliding, thanks to price wars and rising costs. Volkswagen, whose flagship product in China is the midsized, four-door Santana, saw its operating profit in China more than halved in 2004 to $280 million.
Cutbacks on government vehicle buying and lending for auto purchases are prompting Chinese car buyers to opt for more affordable models. And with gas prices averaging $1.60 a gallon and tightening government fuel efficiency standards, compact cars are a more logical choice for small families.
The three top-selling models in China during the first four months of the year were all economy models, according to the China Automobile Manufacturers Association: the Elantra, from South Korean carmaker Hyundai Motor Co.; Tianjin FAW Xiali Automobile Co.'s TJ7101U; and Chery Automobile Co.'s QQ mini-car.
GM acknowledged the changing market when it unveiled in February a new series of small and midsize Chevrolets aimed at under-40 young professionals buying their first cars. GM went even further yesterday when it said its joint venture, SAIC-GM-Wuling Automobile Co., will purchase a former automobile plant in Qingdao to increase production of mini-vehicles.