At precisely the moment General Motors in the US applied for Chapter 11 bankruptcy the two Chinese joint ventures they are involved with reported record sales within their domestic market.

One, Shanghai GM, the j-v with Chinese car maker SAIC Motor claims that their sales are up a whopping 50% over last year.  Sales in May alone reached 56,000 units, mostly under the Buick name.

This can only be good news as many leather manufacturers  have come to rely increasingly on the auto industry.  It’s an attractive market because the leather tends to be high-end, carries better margins and, of course, each vehicle uses a lot of leather.

Demand for leather upholstery in cars is significantly higher in Asia generally than in older markets such as the US or European Union (EU).  Whereas top marques, such as Mercedes or Jaguar, have always provided leather as standard (you have to make a special order not to have it installed), in mid-level cars it’s usually an optional extra.  Not so in Asia, apparently, where local buyers typically insist on leather even for relatively inexpensive vehicles.

What is particularly encouraging for leather manufacturers in this market is that Chinese car sales generally are going gangbusters.  GM’s other j-v, this one with SAIC Motors and Liuzhou Wuling Automobile, sold 100,258 vehicles in May, mostly minivans: the first time any Chinese motor manufacturer has exceeded the 100,000 unit monthly sales mark.

Meanwhile, China’s biggest automaker, Chery Automobile has just raised 2.9 billion Yuan from local investors.  Although leather upholstery in lower-end cars may be limited what is encouraging is that it demonstrates Chinese consumers are buying at all levels: it’s not just the rich buying luxury brands.

China has around 50 car manufacturing companies.  Several, such as Chery, Geelong, SAIC, Great Wall, Beijing Auto, and Brilliance Chinese Auto are pretty substantial.  Some of the better established companies offer made-in-China versions of US and European brands such as Volkswagen or GM.  Hitherto many Chinese-made cars and SUVs bore a striking resemblance to US and European models.  Toyota Pajero owners in China recently experienced repeated theft of their car’s Pajero logo.  They had not travelled far and could be found adorning the front of the locally-made version.

But that was then.  Now Chinese-made and designed cars offering increasingly high standards are appearing on China’s roads at a brisk pace.  For sure, many of these smaller manufacturers will disappear, or get bought out, but this sort of ‘churn’ is typical for the history of car markets throughout all economies.  The up-side is that it often throws up innovation and advances. 

Next to buying a home making a purchase of a car is usually the second largest financial outlay for Chinese buyers as it is in all western markets. Moreover, some analysts believe that prices may start rising again in the second half of the year so now would be the time to buy a high costs item like a car.

Just to rub the story home, in the US GM sales plunged 50% in the first quarter of 2009.

All China Leather Exhibition

Established up-market car manufacturers in China, such as Mercedes, BMW or GM would be expected to have quite extensive buying experience of high-grade leather.  Of course a new source is always welcome.  However, in this rapidly developing market, throwing up an increasing number of companies new to the field, rare opportunities exist for leather manufacturers to walk through open doors to Chinese car manufacturer buyers and develop lasting relationships.

It is extremely difficult to estimate the potential size and scope of China’s car market, or guess at what price level retail buyers demand leather. However, it is safe to say that the potential throughout is massive.  Moreover, as the retail buyer’s choice for leather trends downward in tandem with the car price level, opportunities abound for those who can supply leather meeting these slightly less demanding criteria in terms of cost, quality and service.

The All China Leather Exhibition (ACLE), which runs from September 2- 4, 2009, in Shanghai, is the premier international leather industry event in China.  Over a 10 year period this annual event has become a ‘must attend’ exhibition for international exhibitors to meet China’s major leather buyers.

ACLE is organised by APLF, who organise also the Hong Kong Leather Fair (which celebrated its 25 anniversary this year) and the China Leather Industry Association (CLIA)

Last year a total of 1,120 exhibiting companies from 38 countries and regions, welcomed 15,755 buyers ^*, almost all of the latter came from mainland China.

Consolation purchase

Until very recently the perceived wisdom on China’s economy was that it would fare better than most, but some sort of downturn was inevitable.  China is, after all one of the major global economies (its precise position varying with how these things are estimated) so some sort of downward valuation was necessary.

This does not seem to be the case, and certainly not at the retail buying level.  Demand has held up at a remarkably high level.  This could be due, in part at any rate, by the Chinese government’s efforts to boost spending, which benefitted consumers (rather than elsewhere when money was diverted into the banking and related sectors.)

The Chinese tend to save more and, of course, they are not experiencing excessive debt levels because that market is still in its infancy.

Many concluded that Chinese retail buyers would react to the global economic downturn by forgoing the really big-ticket items, such as a car, and plumb instead for a consolation purchase – such as a new pair of high end shoes, or a top brand leather bag – and put the car purchase off for the time being.

But China’s workforce is becoming more productive, which typically benefits the more skilled section of the workforce: the very people most likely to be profiled for buying big-ticket items such as …. well, a car.

In the event it seems that Chinese consumers are indeed buying high-end shoes and leather handbags – and the car as well.

The Chinese car market offers tremendous possibilities for leather producers.  Not just for the upholstery – what about that key-fob?  In leather, naturally.

* ACLE is held in tandem with, and at the same location, as the China International Footwear Fair and Moda Shanghai.