The First Breakthrough of the Automotive Industry's Profit Growth Diversification
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By the end of 2007, passenger cars made up 71% of total car sales, with their overall share rising from less than 20% in 2000 to 53% today. After years of development, China's automotive industry has seen a fundamental shift in product structure. As the market matured, automakers faced increasing pressure to meet sales targets, especially before the end of 2008. To boost sales, many manufacturers continued to lower prices across the board, from economy models to mid-to-high-end vehicles.
Sina Motors, one of the most popular automotive websites, frequently highlighted price cuts such as the "Ming Rui dropping by 6,000 yuan" and "Sagitar decreasing by 10,000 yuan." Similarly, Sohu Auto featured headlines like "Magotan reduced by 10,000 yuan" and "A model priced at 108,800 yuan now lowered," which attracted significant online traffic. This suggests that the auto industry was still locked in a fierce price war, despite it having persisted for several years. While this trend might seem to erode profits, data from the China Association of Automobile Passenger Car Manufacturers tells a different story.
According to statistics covering the first 11 months of 2007, the auto market is expected to grow by 22%, with profits surpassing 100 billion yuan—far exceeding the average growth rate of China’s manufacturing sector. This raises an interesting question: how can profits be growing rapidly when prices are being cut?
Rao Da, a spokesperson for the National Passenger Vehicle Market Information Association, points to increased localization rates in joint-venture production models as a key factor. Some joint ventures achieved over 80% localization, while more than 90% of new models had at least 40% local content. By the end of 2007, the average localization rate reached about 75%. This shift allowed companies to maintain profitability even as they reduced prices.
Additionally, the structure of car sales began to change. Small, low-profit cars saw a decline in sales, while higher-end sedans with 1.6–2.5L engines gained popularity. These models offered greater profit margins, contributing significantly to overall industry gains. According to Guo Yu, an auto analyst, the combination of deeper localization and shifting consumer preferences helped sustain high profit growth.
Looking ahead, Wang Mingcun, an analyst at Tianxiang Investment, predicts that 2008 will bring more diversified growth. SUVs, MPVs, and crossover models are expected to maintain stable competition, driven by lifestyle changes and improved quality of life. Meanwhile, the market remains highly fragmented, with the top four companies holding only around 35.6% of the market. This fragmentation may lead to further consolidation, enabling larger groups to achieve scale-based profitability.
Moreover, independent brand cars are emerging as a new growth driver. FAW, SAIC, Dongfeng, and GAC have all launched their own brand strategies. Although these models mainly target the economy segment, they are also gaining traction in exports. In the first 10 months of 2007, China exported 180,000 vehicles, with export unit prices rising by 32% to $11,600. The appreciation of the renminbi further boosts the profitability of these exports.
Finally, the after-sales service market is set to become a major profit source. Studies show that in mature markets, 60% of automotive industry profits come from services, not just vehicle sales. As China's car market expands, this sector is expected to play an increasingly important role. With more cars on the road, demand for maintenance, parts, and services will continue to rise, offering new opportunities for growth.