Study: Internet and Auto Shows are Best Way for Car Manufacturers in China to Spend Their Marketing Budgets

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

SHANGHAI - July 20, 2007: 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."

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.

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