Research Underlines That Internet and Auto Shows are Best Way for Car Manufacturers in China to Spend Their Marketing Budgets

Research Underlines That Internet and Auto Shows are Best Way for Car Manufacturers in China to Spend Their Marketing Budgets

July 20, 2007

China's Car Dealers Have Limited Value in the Consumer's
Decision-Making Process


    SHANGHAI, China, July 20 /Xinhua-PRNewswire/ -- Where
do China's car buyers go to for high quality and credible
sources of information when they decide what to buy? Family
and friends come top of the list; car buyers are also avid
fans of the Internet and visit auto shows too when making a
decision. But traditional marketing channels such as car
magazines, advertisements in newspapers or TV/radio,
billboards or sports sponsorship have little impact. And
China's car dealers have a lot to learn when it comes to
persuading China's car buyers to part company with their
hard-earned cash. These are some of the results of a China
survey, jointly conducted by KPMG and TNS - a world leader
in market insight and information, into consumer
perceptions of car brands and purchasing motivation.

    Klaus Paur, Automotive Director at TNS China, said:
"Our survey raises the question of whether car
manufacturers - both domestic and foreign -are spending
their money in the best way. If they develop a strong
online presence and deliver a rich stream of online news
into the marketplace through chat rooms, blogs, press
releases and trade reviews, then they are doing the right
thing. Our research also shows that car manufacturers
investing in international, regional and local auto shows
are also putting their money where it counts. China has
grown at a breathtaking pace over recent years and has now
overtaken Japan to become the world's second-largest auto
market after the United States. Today, China represents the
single largest sales opportunity for all car manufacturers
worldwide. Their marketing teams should note these
findings." 

    Please refer to the link for the chart of "Value
of Different Sources of Information for China's Car
Buyers":  http://www.xprn.com/xprn/sa/200707191440.JPG

    When asked to rank the source of information offering
the most credibility and quality when making a car
purchase, family and friends scored higher than any other
factor -- with over 40% saying this was the most credible
source to turn to. TNS research also found that over 30% of
car buyers rank the Internet as a quality source of
information prior to a purchase, and that close to 25% see
the Internet as credible when deciding which car to buy.
Auto shows are also having a strong influence on buyers
evaluating car brands and models, scoring close to 30% in
terms of both credibility and quality.

    Marketing channels such as sports sponsorship,
billboards, radio or TV commercials, and dealer promotional
activity achieved scores as low as 5%. Dealers did poorly in
the recent TNS survey, with less than 15% of car buyers
seeing China's car dealers as credible or informative
factors in buying a car. 


    Reliance on Internet content as a source of car
purchasing information(%)
                                                           
         
                     Extremely important      Very
important       
    Internet                 6.3                    34.1 


    If car manufacturers are unsure as to how they can ever
influence networks of families and friends in a country of
1.3 billion, they can at least turn to the Internet for
help. China's car buyers rely heavily on Internet content
as a source of purchasing information, with more than 40%
ranking the Internet as "extremely important" or
"very important" in making a decision. The
Internet is making the process of car purchasing
increasingly transparent for China's consumers -- in the
same way it has done for car buyers in more developed car
markets. Chinese consumers use the Internet extensively for
pre-purchase information, and actively browse auto websites,
read up on news about brands, compare prices or join
web-based discussions. 


    Main reasons for car purchase at a chosen dealership
(%)  
           
                                        Most influential   
 2nd most    
    Attributes                               factor       
influential 
                                                           
  factor      
    Recommendation from                                    
             
     friends/acquaintances                    25.6         
   11.4 
    Availability of the preferred brands      18.0         
   14.2 
    Good service quality                      16.8         
   21.1 
    Convenient location                       14.6         
    8.6 
    Low prices                                11.7         
   11.3 
    Good advice                                5.9         
    5.2 
    Wide range                                 3.6         
    4.9 
    Close customer relations                   2.7         
    6.0 


    Friends and acquaintances again topped the list when it
came to identifying the specific reason Chinese car buyers
choose a particular dealership. More than 25% of car owners
said this was the most influential factor, and less than 6%
of car buyers felt they received good advice at a
dealership. 

    Klaus Paur added: "This shows the obvious need for
China's car dealers to improve their service quality. In a
market where car buyers rely to a great extent on
recommendations from family and friends, each individual
dealership experience becomes critical, since positive
word-of-mouth will help to bring new customers into the
showroom. China has become one of the major car markets in
the world and has changed from a seller's to a buyer's
market. With consumers empowered by an ever-widening range
of vehicles to choose from, a competent performance by the
dealer at the point of sale will help secure a sale. But
right now, China's car buyers have little trust in China's
car dealers."

    The KPMG/TNS survey also revealed four other key
findings:

    -- Chinese consumers make careful purchase decisions
       The TNS research pointed to a distinct lack of
experience in China with 
       cars, as evidenced by the fact that a majority of
consumers surveyed 
       were first-time car owners. Chinese car buyers on
average consider                  
       three brands before they buy and are likely to visit
each dealership 
       for the brand before making a purchasing decision.
For example, in the 
       mid-size segment (comprising 422 respondents within
the 1041 sample), 
       2.9 brands were considered before a purchase and the
number of 
       dealerships visited was 2.7. This is a more
intensive process than is 
       seen in mature markets -- where the average is less
than 2.0 brands 
       considered.

    -- Car finance still in its infancy
       TNS research showed that while 25% of car buyers had
access to finance 
       during the purchasing process, very few took
advantage of this 
       resource. The survey found too that car financing is
not yet perceived 
       by customers to be important, and is not yet having
any meaningful 
       impact on customer retention. 

    -- Owners of Chinese car brands less loyal than owners
of overseas brands
       When it comes to brand loyalty, the survey showed
that owners of 
       Chinese cars are less committed to their brands than
the owners of 
       foreign brands. Some 47% of those owning non-Chinese
brands felt a 
       strong commitment to the brand they had purchased,
compared to 24% 
       among owners of Chinese cars.

    -- Dealers of Chinese auto brands face the highest
probability of losing 
       their customers
       Dealers of Chinese brands have a higher probability
of losing their        
       customers than dealers of foreign brands. This is
because the Chinese 
       brands perform poorly in terms of the degree of
satisfaction a buyer 
       has with a car dealer, prospects for second
purchases, and the 
       likelihood the dealership will be recommended to
others. However, 
       foreign brands should not be complacent. The
majority of foreign-brand 
       owners are also somewhat disloyal to their
dealerships, just not to the 
       same extent as Chinese brand owners.  

    About the KPMG/TNS study

    All the findings referenced here come from TNS research
that was conducted jointly with KPMG in China and completed
in April 2007. The research set out to identify consumer
perceptions of various car brands, as well as shopping
experiences of consumers at automotive dealerships. The
study also looked at consumer behaviour in terms of how
first-time and subsequent purchasing decisions are made, as
well as what factors are likely to influence purchases in
the future. 

    A sample of 1,041 respondents was interviewed via a
structured questionnaire. All respondents were recent
new-car owners, having owned their vehicle for less than 12
months. Ownership was equally distributed between three car
segments as follows:

    -- Compact/small cars: Purchase price less than RMB
130,000
    -- Mid-size/mid-upper cars: Purchase price from RMB
130,000 to RMB 250,000
    -- Luxury cars: Purchase price more than RMB 250,000.

    The survey's sampling was equally distributed across
the 12 best-selling car brands in China and covered all car
segments as long as the brand had a presence in the market
being surveyed. Coverage included joint venture brands from
the US, Japan, Korea, and Europe, as well as Chinese local
brands. Respondents were also distributed between
first-time car owners and experienced owners.

    The research was conducted in Tier 1, Tier 2 and Tier 3
cities across China.

    About China's automotive market

    China has now overtaken Japan to become the world's
second-largest auto market after the United States. Total
new vehicle sales (including trucks and buses) grew by 25%
to 7.2 million in 2006. New passenger car sales also
reached 4.4 million units (including MPVs and SUVs), an
increase of 34% compared to 2005. Passenger car sales
reached 1.2 million in the first quarter of 2007, rising
20% from the same period last year. 

    Today, China has approximately 50 car manufacturers
(OEMs) and the automotive industry is relatively
fragmented: the country's top two manufacturers account for
around 20 % of passenger car market share. Also, foreign
brands currently dominate the market, accounting for almost
75 % of China's car sales. However, domestic manufacturers
are increasing their activities rapidly, as they expand
their product lines in the medium and lower-end segments.

    China is currently one of the most profitable markets
in the world for OEMs. This is partly explained by
relatively high prices in comparison to international
levels, especially for high-end models. However, increased
competition for market share has driven car prices down in
the last two years. China's auto sector reported an
increase in profits in 2006, with combined profits from the
industry rising 46% to USD 10 billion, the first increase in
three years. Industry profits on items including vehicles,
engines, spare parts, and motorcycles fell by 24.3% in 2005
and 5.2% in 2004. The 2006 rise was driven by
stronger-than-expected car sales and the launch of a record
number of new car models.

    About TNS:

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    For more information, please contact:

     Cindy Liu
     Marketing & Communications Manager
     TNS China
     Tel:   [phone] #156
     Email: [e-mail]