Four wheel thrive
Land Rover's China sales are good news for Tata Motors
22 Mar 2013
Week in China
In December last year, Ratan Tata sat down with the Financial Times for a cup of chai. Over the next few minutes, the outgoing head of Tata Group, India’s largest conglomerate, gave his view on the perennial topic of competition between India and China, the world’s most populous countries.
“Certainly the political system in China could get more things done than a democracy might, but given even that difference, I think that India has a big market … It has a rule of law, it has a common language. There are many, many things that stand in India’s favour.”
Naturally, Tata favours his home country. But he won’t be averse to the success that Tata Motors is having in China, much of it driven by the considerable popularity of the Land Rover brand.
China is now the single largest market for Jaguar Land Rover, the firm that Tata Motor acquired for $2.3 billion in 2008. It sold more than 73,000 luxury and sports utility vehicles (SUVs) to Chinese drivers last year, a 71% increase on the year before.
Four-wheel drive might seem a little excessive for the heavy traffic that plagues China’s more affluent cities. But Chinese drivers have been showing more interest in SUVs than any other type of foreign car import. They accounted for a little over 52% of the 1.09 million cars imported last year.
All this is good news for Jaguar Land Rover, which is good in turn for Tata Motors. When Tata acquired JLR (it makes Jaguars as well as Land Rovers) there were concerns that Indian ownership could damage the British image of the respective brands.
That doesn’t seem to have happened. “After entering the Chinese market, in order to meet China’s local conditions, Jaguar Land Rover began repositioning,” auto analyst Zhong Shi told Time Weekly. This involved heavy spending on marketing a luxury image for Land Rover to enable it to command a higher price, Zhong says.
Demand for SUVs has been “surging” for the past five years, with 240,700 SUVs sold in January alone
The idea was to create an image that plays on the somewhat romantic image that the Chinese associate with the brand’s British origins. Time Weekly even refers to the 2006 film The Queen, in which the monarch drives herself around in a Land Rover, by way of explanation. The message? That the brand is “expensive – it’s the royal car – but low-key and simple” too.
It also makes sense for Tata Motors to target the upper end of the market, as it is difficult for its own Indian-made vehicles to be competitive in China.
“Due to tariffs, cheaper cars imported from India can hardly have a price advantage in China,” Zhan Hongyu, president of Tata Group (China) told Talents Magazine.
“After China’s domestic consumers have gained a certain level of economic strength, they will increase the amount they will pay for their cars, so we are more optimistic about the high-end market,” Zhan also advised.
But why are the Chinese so keen on SUVs?
It’s a phenomenon that a number of newspapers have been exploring. National Business Daily says demand for SUVs has been “surging” for the past five years, with 240,700 SUVs sold in January alone. It also points out that 20 new models were released last year, which is to say that a quarter of all new vehicles launched were SUVs.
Southern Metropolis Daily reckons customers like these large vehicles less for their off-road abilities than for their space and the driving experience. Like “riding a tall horse”, their height gives drivers a sense of superiority over sedans.
But Economic Information Daily cites unnamed auto experts as warning that the central government is growing more concerned by the popularity of these “gas guzzlers” both on energy consumption and environmental concerns.
But even if SUV sales are taxed more aggressively, the newspaper doesn’t think demand will wane too much. These kinds of vehicles are bought by the rich and “the consumer psychology is to show off wealth”. So cost shouldn’t be an issue, it suggests.
Week in China
Week in China helps keep you up to date with the key business news from the world's fastest-growing large economy. It is produced on an exclusive and complimentary subscription basis for HSBC's corporate and institutional clients.