China's new love: The car

Today’s Chinese consumers are hustling to get wheels of their own. That's good news for dealers like Shanghai Volkswagen -- but bad news for drivers stuck in the morning commute.
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By Suzanne McGee, MSN Money

ANTING INTERNATIONAL AUTO CITY -- As a little boy growing up in the final years of Chairman Mao Zedong's rule over China, Liu Lei had a dream that was bigger and bolder than the dreams of his elders, who had looked forward to the day when they might have enough money to buy a transistor radio or a bicycle or even -- if they were supremely lucky -- a television set.

Liu dreamed of one day owning his own car.

"I drew pictures of it. It looked like a Russian limo," recalls Liu today. "It was black, very big, with a big hood but a smaller trunk."

In his youth, Russian limos were easy enough to spot amid the bicycles that teemed through the ancient streets of Shanghai and blanketed the broad avenues of central Beijing. These days, though, it's getting harder by the day to pick out the bicycles amidst the cars. Video: Too many car choices

And Liu's dream has come true, although not exactly as he had envisioned. He and his friends are buying not Russian behemoths but compact Volkswagens and Buicks, which are being adapted to the tastes of the increasingly sophisticated and demanding Chinese car consumer with painstaking care. Just ask Liu, now a senior marketing manager for Shanghai Volkswagen.

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It's hard to know for certain how many cars there are in China these days. Last year, The Beijing News calculated that the capital's citizens alone owned 2.75 million cars, while the Beijing Youth Daily suggested the number was closer to 3 million. Whatever the precise figure, the rate of car ownership in the capital is exploding. A recent ACNielsen survey calculated that 28% of the city's residents now own their own cars, up from 11% in only two years. Chart: Car ownership growth

During early evening rush hour, it can take nearly 20 minutes to drive around a single city block. Taxi drivers have become reluctant to take short-haul trips, and Chinese drivers are learning the Western concept of "road rage." Map: Car density by region

But with more than 7.2 million vehicles rolling off assembly lines at Chinese auto makers last year -- and millions more imported -- China's love affair with the automobile is probably still in its infancy.

"Everyone in China has enthusiasm and love in their hearts for their cars," says Liu. The Chinese read Web sites and bulletin boards sponsored by auto makers for clues on how to keep the exterior shiny, he says, and they snap up accessories with which to decorate the steering wheels and bumpers. "They are enthusiastic about taking care of that lovely baby."

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According to predictions by Credit Suisse analysts, total car ownership in China will rank fourth in the world by 2014, after the U.S., Japan and Germany. Little wonder, then, that companies ranging from Shanghai Volkswagen -- one of the first joint-venture production plants and still one of the largest -- to new domestic players like Chery Automotive and Geely are all battling for this highly fragmented but potentially lucrative market. Graphic: Who's got market share?

China's car craze is already reshaping the country's social landscape. Shanghai's high-end office buildings, for instance, offer potential tenants an unusual amenity: parking concierges. Workers monitor every parking space in a building's underground garage, communicating via walkie-talkie with a colleague stationed in front of the building. That person prevents would-be visitors from entering the garage until a spot opens up -- and then directs the driver straight to the one vacant slot.

Meanwhile, the proliferation of cars and scarcity of parking spots is also creating a demand for chauffeurs, says David Tang, a partner at law firm K&L Gates.

"Most people don't want to have to deal with the traffic and the challenge of parking themselves, so they'll have a driver take care of the car during the week and drive it themselves on the weekends," says Tang,

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who divides his time among Seattle, Beijing and Hong Kong. Professional drivers also help keep those shiny new cars looking pristine; most Chinese drivers are still a little short on experience.

Cars have created new leisure-time activities as well.

"In the past, when you thought about a holiday, you spent time with friends or maybe, if you had a longer holiday break, you would go on a trip on (buses) to Hangzhou," says Jixun Foo, a partner at Granite Global Ventures in Shanghai. Now holiday breaks frequently revolve around car clubs, associations formed by buyers of a particular brand and model of car. One of the more popular clubs focuses on Shanghai Volkswagen's Polo; its members recently organized a road trip to Tibet. Video: Hitting the road

"In the United States, the car is about the liberation of the individual" from constraints of space and time, says Tom Doctoroff, head of greater China for advertising agency JWT and author of "Billions: Selling to the New Chinese Consumer." Americans use their cars as extensions of the home or office, Doctoroff points out: catching meals at drive-through fast-food restaurants, applying makeup, listening to instructional audio tapes or even holding business meetings on their cell phones.

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Attitudes are different in China, he argues: "In China (the car is) not individualistic, it's not just about exploration or discovering new horizons; it's about status."

Status rules. That's seen within the offices of Shanghai Volkswagen, where Liu frets daily over the growing prestige of rival Buick, as well as the perception that Volkswagen's venerable Santana -- still a top-selling vehicle -- is only "third- or fifth-best."

The hunger for status is also apparent on the ground floor of the Beijing office building that houses Tang's law firm -- home to a Rolls-Royce dealership where business is booming.

"Late last year, I was talking to the owner," Tang recalls. "And he told me he'd just come back from attending the annual meeting of Rolls-Royce dealers worldwide. He had won the award for selling the most vehicles of any dealer in the entire system in the latest 12 months."

When Tang asked how many vehicles that added up to, the dealer replied that he was selling 15 or 20 Rolls-Royce Phantoms a month -- cars that in China retail for more than $500,000 apiece. Rolls-Royce has taken note: With Chinese sales growing at a 50% clip annually, the company plans to open three new

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dealerships this year, for a total of seven nationwide.

As sales boom and more vehicles take to the road, the infrastructure can't keep up. A new expressway built to alleviate traffic jams between downtown Beijing and the airport is already bumper-to-bumper in peak traffic periods. Planning a long-haul trip? Don't count on driving. "The highway system hasn't even been built yet -- and there aren't reliable maps, so you're going to be pulling over to the side a lot to ask for directions," says Tang. Video: Discovering traffic jams

On the other hand, who needs maps? Always hungry for the latest gadget, Chinese drivers have something else in mind: "It is estimated that from 2006 to 2009, the vehicle navigation device market will boom by at least 50% a year," the online news service Chinanews predicted brightly.

Chart: Chinese stocks to watch

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