Live Issue... Chinese car buyers see no benefit in greener models

Do China’s consumers care about the environment? Apparently not, judging by sales figures for Toyota’s hybrid model Prius. A mere 414 Priuses, the only international model of hybrid car available in China, were sold on the mainland last year. The question for car brands is whether hybrid or any other green technology will take off in China, or whether it is a market that simply is not interested.

“There are two basic issues facing environmentally friendly cars - one regards government policies and pricing structures, and the other is what consumers think about the product. Both seem to be at work in China today,” says Kunal Sinha, executive director for discovery at Ogilvy & Mather Greater China. “A further issue is that consumers think the environment is something the government should do something about, not something they influence with their daily choices.”

Cost is a vital issue in all car marketing in China. There is little hybrid production in China, so most Priuses come through import channels, and they have a higher duty placed on them.

What’s more, because of the country’s new-found wealth, first-time buyers purchase most cars sold in China today. “For first-time buyers, cost of ownership is put ahead of environmental concerns,” says Simon Sproule, corporate VP of global communications at Nissan Motors.

Cost of ownership can be broken down into several factors, of which initial purchase price and fuel costs are foremost in the minds of buyers. “Fuel economy is the single most important factor influencing Chinese car buyers,” says Sproule.

When it comes to fuel efficiency, hybrid cars are up against stiff competition, not only from international brands but also from China’s more than 100 domestic brands - most of which are very fuel efficient. “Many cars being successfully manufactured and marketed in China are already mid-sized to small cars with decent fuel efficiency, so the hybrids don’t look as good as they do in markets where they are compared to SUVs,” says Michael McComb, CEO of The Disruption Consultancy.

The rise in fuel price that has helped spur hybrid take-up elsewhere has not bitten to the same degree in China, where prices are subsidised. “For a while, Chinese consumers are probably protected against really aggressive price hikes,” suggests Sinha.

Subsidised gasoline prices make it more difficult to get the price equation for hybrid cars to work. Currently retailed at around US$40,000, hybrid cars are nearly twice as expensive as the average car bought by Chinese consumers - a difference that cannot be made up by fuel cost savings alone. “Consumers need to see that there’s something in it for them, which they don’t with hybrids in China,” says Sproule.

Another reason hybrids are struggling in China is that their premium pricing - which places them in the same range as Audi and BMW - does not translate into making them a status brand: a Toyota Prius is still just a Toyota.

All may not be lost for brands such as the Prius. Beijing has shown some indication that it is interested in clearing up air pollution, and that eventually may spur interest. “Manufacture of hybrids in China should take off and we should see increased volumes in the next five years as the Government gets behind building greater eco awareness and subsidises production and purchases,” predicts McComb.

And as Sproule points out, a change in the fuel economy calculation could make all the difference. “Consumer behaviour has changed rapidly in response to pricing pressures elsewhere,” he says. “There’s no reason that couldn’t happen in China.”