“The Fiesta would have cost me almost double that,” she said. “Considering my family’s economic situation, I decided to buy the QQ.”

Consumers like Zou present both an opportunity and a challenge for global automakers in China. Car sales are showing signs of picking up again after a tough twelve months, but the large sedans that used to fuel the market — and that foreign carmakers are known for locally — no longer dominate the market.

“Two years ago, it was all about the big sedans. That’s not the case anymore. It’s the affordable small cars,” says Michael Dunne, president of Automotive Resources Asia, a consulting group that focuses on auto trends in China.

China is now following the same pattern as other developing markets like Brazil, India and Thailand, where demand is concentrated on cars priced under US$12,000, according to Dunne.

A survey of 39 passenger-car makers conducted by the China Association of Automobile Manufacturers showed car sales in March rose 2.5 percent year on year to 256,000. That small percentage increase helped China reach its largest monthly sales volume ever, according to analysts, and has boosted morale among dealerships suffering from a year of sluggish sales.

The top three models sold in March were all compacts or mini-cars: South Korean carmaker Hyundai Motor Co.’s Elantra, Tianjin FAW Xiali Automobile Co.’s TJ7101U and Chery Automobile Co.’s QQ.

Analysts attribute the increasing popularity of small cars to the credit-tightening measures the Chinese Government instituted last year. Those measures were intended to slow China’s booming economy by restricting investment in overheating industries. But the measures also curtailed vehicle purchases by businesses — the main buyers of large cars — and made it more difficult for consumers to get car loans.

Overall, car sales in China plunged in the second half of 2004 after the credit-tightening measures were announced, and fell a further 7.7 percent in the first quarter of this year.

The market cooled just as multinationals, such as General Motors Corp. and Germany’s Volkswagen AG pledged multibillion dollar investments in China to bank on a market that jumped more than 50 percent in 2002 and 2003. Growing production capacity in the sluggish market made matters worse for the carmakers, who were forced to make several rounds of price cuts, hurting profits.

But sales of small cars, often bought with cash, remained unscathed from the credit-tightening measures.

Hyundai said it sold 19,452 Elantras to customers in March, helping its Beijing joint venture to sell nearly 2.6 times as many cars in the first quarter than in the same period last year, with annual wholesale sales of 56,064 cars.

Xiali, the most aggressive price cutter in China’s car industry, sold 11,751 TJ7101Us in March, while Chery sold 10,887 QQs, according to the industry association.

Chery’s QQ has been a particular headache for GM. The U.S. carmaker sued Chery in China, accusing it of copying its Chevrolet Spark mini-car. Chery denies the alleged wrongdoing.

Last year, Chery sold about four times as many QQs over Sparks with prices as low as US$3,600 a car. Sparks sell for between US$5,500 and US$7,500 in China.

Foreign carmakers admit they can’t compete on price. Even Honda Motor Co., one of the few carmakers in China to continue to enjoy strong growth, has no plans to introduce the mini-cars it sells in Japan into the Chinese market.

“Even if we decided to introduce the mini-cars to China, we wouldn’t match the super-cheap price offered (by the Chinese automakers),” said Masaya Nagai, public relations manager for Honda Motor China Investment Co.

Industry analysts say Chinese carmakers are able to keep costs low by buying less expensive parts, keeping research & development spending to a minimum and giving workers fewer benefits.

Instead, foreign carmakers are focusing on quality.

“Pricing is not the only factor. More and more consumers are aware they can’t just look for bargains. Fuel efficiency, environmental impact, product quality are important as the government implements stringent regulations, which could ban cars that don’t meet standards from some cities, and as they may find themselves with a lemon on hand,” said Ford Motor Co. spokesman Kenneth Hsu. “It’s an opportunity for us in the future.”

(Shenzhen Daily April 14, 2005)