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Higher fuel prices drive vehicle buyers to think small

(Agencies/China Daily)
Updated: 2008-06-30 11:01

Wang Bin, a 39-year-old Shanghai doctor, plans to buy a bigger car to replace his 4-year-old Volkswagen Santana.

But after the announcement of a hike in Chinese gasoline prices starting from June 20, he'll go for a fuel-efficient model such as a Toyota Camry or a Honda Accord.

"We'll need to pay nearly 100 yuan ($14.55) more at the pump every month," says Wang, browsing a car dealership with his wife and 9-year-old son. "If fuel prices rise further, we might have to go back to a Santana."

China's love affair with the automobile is starting to change as fuel prices rise closer to global levels in the world's second biggest auto market - a change which could temper demand growth in China, which is also the world's No 2 oil consumer.

Growth in sales of big cars, seen as status symbols by the country's burgeoning middle class, may suffer as consumers increasingly shift towards small, fuel-efficient vehicles - and even new technologies such as hybrids.

That could be good news for foreign makers that are already selling smaller cars in China, such as Toyota Motor, Honda Motor and Volkswagen AG.

General Motors and Ford Motor, which have been relying on China to cushion sagging US sales. But they have less of a global reputation among consumers for fuel efficiency.

Shifting consumer demand may also prompt Chinese makers to step up efforts to develop greener cars. Top local players such as SAIC Motor, China's biggest car producer, may have the deep pockets and technical resources to succeed.

"I think we will see the same impact in China that we're seeing in the developed world; people will become more aware of the fuel consumption of vehicles they use," says George Dittmer, analyst at global growth consulting firm Frost & Sullivan.

Rising gasoline prices

China's 17-18 percent hike of nationwide retail prices for gasoline and diesel starting June 20, the first increase in seven months, was the biggest price rise for years.

By itself, the hike is unlikely to have much impact on rocketing growth in total auto sales, analysts believe. At fewer than 60 cars per 1,000 people, auto ownership is still only a tenth of levels seen in the developed world.

But the price hike is widely seen as heralding more rises in coming months or years, as China works toward its declared goals of limiting its rising dependence on energy imports and developing the economy in a cleaner, more energy-efficient way.

And there's plenty of room for Chinese fuel prices to rise further; the hike took gasoline to about 75 US cents a liter, still a quarter cheaper than in the United States and about a third of what British motorists pay.

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