Collection No 1
What drives car ownership among Chinese consumers?
Jia is one of many learner-drivers in China. He is a “new” Shanghainese—meaning he isn’t originally from Shanghai. In addition to being “new,” he is adding two “new” titles—new father and new driver. Being born in the 80’s, Jia is the first person in his family to own a car. His purchase of a new Volkswagen Passat is a meaningful milestone, much like his father’s Phoenix bicycle was 20 years ago. Jia’s Passat will not only carry his wife to her prenatal exams, but also will bring their newborn baby home from the hospital.
Like many learner-drivers, Jia has been stressed recently facing a difficult decision—should he register his car in Shanghai? To license a car to operate in Shanghai now costs 60,000RMB ($9,000). However, Jia’s Passat only cost 263,000RMB ($42,000). In his hometown, a car license only costs 220RMB ($35). This is a common scenario for the rapidly urbanizing population of China: to debate whether owning a car is worth it economically. As the economy grows, the demand for automobiles has increased dramatically. In order to stem demand and help control air quality, the Shanghai government has implemented an auction system for awarding car licenses. In May 2012, 24,000 new car owners competed for a mere 7,500 licenses at auction. And given the low probability of getting a license, competition continues to push the price higher and higher.
Considering that licenses had previously sold at auction for 61,000RMB, Jia figured that a 63,900RMB bid would win him a license. But every month the price to license a car in Shanghai changes, and the final price (in May 2012) ended up 64,000–63,367RMB, so even after paying the premium, Jia did not win a license. His friends recommended that he buy a non-Shanghai license, but that would mean being blocked from driving on Shanghai highways every day during peak travel times of 7:30-9:30am and 4:30-7:00pm (it is not uncommon to see non-Shanghai-licensed cars waiting near freeway on-ramps for the restricted period to end). That option would be too inconvenient for Jia, and would leave him feeling like he hasn’t fully integrated into Shanghai life.
Jia remembers when, as a child, it was rare to see a car on the street. In 1977, there were only 1 million cars in all of China. By 2008, that number had increased to 51 million, and reached 100 million by 2011. This exponential growth has increased awareness of traffic management issues and environmental concerns, and impacts how car buyers make their purchase decisions. The most successful brands in China among the middle class—Volkswagen, Audi, Buick, Honda, Mazda, Toyota—understand this and have adjusted their branding accordingly. Volkswagen created its first joint venture with the Chinese automotive industry and even hosted a crowdsourced design project in 2011. Its overall business model is to use its core technology worldwide, but to localize assembly, distribution channels, and after-sales service, tailoring all to China.
As the economy grows, the demand for automobiles has increased dramatically. In order to stem demand and help control air quality, the Shanghai government has implemented an auction system for awarding car licenses.
Jia’s decision to purchase his car was an easy one. Given its brand reputation in China, and its localized services, Chinese consumers trust Volkswagen. Before buying his car, Jia registered on two sites, Xcar (xcar.com.cn) and Autohome (autohome.com.cn), which are online communities and forums where Chinese car buyers turn for reliable information about autos. Online communities are a rich and trusted source of information on all makes and models of cars in China, and prospective buyers turn to them to research specific information about their potential auto purchases before making a buying decision. These forums have also proven to be an educational resource wherein users share tips on how to care for their new cars as well as diagnosing problems. In this way, the entire purchasing experience is actually quite transparent.
As a learner-driver, Jia enjoys learning how to drive and care for his car. A friend recently recommended that he purchase a rearview-mirror-mounted video recorder to capture what Jia sees as he’s driving. This has become quite common in China as a way for auto owners to have a video record in case of an accident. Given his lack of experience as a driver, this strategy could help Jia avoid unfair treatment by other drivers or traffic officials.
Jia’s friend also encouraged him to pay more attention to his car’s performance. Many drivers in China are very interested in how their driving compares to their peers, and the online forums provide a convenient way for learner-drivers to find out how their performance changes over time in terms of fuel economy and maintenance. Regardless of whether a car has an advanced human-machine interface (HMI) system, many owners invest in instruments that allow them to measure their cars’ vital statistics such as tire pressure gauges.
While car ownership continues to be a symbol of success, or living the “sweet life,” in China, Jia is quick to point out that while this is indeed the case, he prefers to call it his “sweet burden.” Given the high costs of obtaining a license and the constant pressure to be a better learner-driver than your friends, it is easy to understand why.
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