April 8, 2015 / 9:00 PM / 4 years ago

China sales of smaller, leaner SUVs soar amid car controls

* China’s car sales growth slowing

* Yet SUV sales soar and outpace sedans

* Rising wealth, licence plate caps support SUV demand

* But Chinese SUVs are smaller than U.S. versions

By Chen Aizhu and Adam Rose

BEIJING, April 9 (Reuters) - Edward Bao, a Chinese highway operations manager in the coastal city of Ningbo, is hunting for a bigger car for his young family and is considering trading up from a compact sedan to a sports utility vehicle (SUV).

Bao is part of China’s swelling ranks of middle-class consumers who are upgrading to SUVs and in the process heating up competition between domestic car firms and global giants as other parts of the world’s largest auto market slow.

A slide in gasoline prices has been the main factor driving SUV sales in the United States, but in China there are other powerful forces at work.

Growing wealth is clearly crucial, but limits on the number of new licence plates in congested cities are also pushing consumers to pick a larger or more pricey ride when they get the chance to buy.

The shift towards larger, family-friendly cars could also start to be helped by demographics after a relaxation in the country’s strict one-child policy more than a year ago.

Targeting Chinese consumers, car firms are developing more compact SUVs better suited to high-density urban environments than American-style gas guzzlers, as Beijing tries to contain choking pollution.

“We need a more spacious car, now that we have a two-year-old baby,” said Bao, 33, who has a budget of 300,000 yuan ($48,000).

After driving a Toyota Corolla for almost five years, Bao has narrowed his search down to a Honda CR-V SUV or a Volkswagen Tiguan both with larger 2.4 litre engines.

Retail sales of SUVs soared more than a third last year to 3.82 million, and have more than doubled since 2012, according to the China Passenger Car Association (CPCA).

The pace of growth in China’s overall car sales has slowed with a cooling economy, but SUV sales are far outpacing purchases of sedans. Nomura expects almost 5.2 million SUVs to hit the market this year, up 27 percent and compared to a mere 1 percent rise in sedans to 12.5 million vehicles.

Soaring demand for SUVs has been also been buoyed by wider availability of financing and by a more regular car replacement cycle that is beginning to form as the market matures.

“China’s economy has reached a sweet spot that has a large group of affluent consumers with $8,000-9,000 annual income. Properties may be too pricey for them, but not a new car,” said Wu Kang, Beijing-based vice chairman for energy consultancy FGE.

SHANGHAI CAR SHOW

Tight caps on new licence plates in major cities like Beijing - where only 120,000 new licence plates for conventionally fuelled cars will be issued this year via lottery - have also boosted demand for SUVs, or similar multi-purpose vehicles (MPVs) like minivans, at the expense of sedans.

The restrictions which are meant to fight congestion and cut exhaust emissions, have pushed consumers towards bigger SUVs, particularly with the odds of getting a licence plate in the capital only 164 to 1.

Seeking a slice of a growing market, foreign and domestic marques launched 29 SUVs in China last year, roughly double the previous year, according to consultancy Automotive Foresight.

The Shanghai autoshow, one of Asia’s biggest car shows, is set to see more SUVs showcased when it kicks off on April 22.

Honda has said it plans to unveil a new SUV prototype tailored for the Chinese market and jointly developed with its local units Guangqi Honda Automobile and Dongfeng Honda Automobile.

Small SUVs like Ford’s EcoSport are growing in popularity, while the low sticker price of Chinese brand Great Wall Motor Co Ltd’s Haval H6 makes it a perennial bestseller.

FUEL DEMAND

The boom in sales of heavier SUVs is likely to boost gasoline demand, although a slowing economy means gasoline demand growth this year is set to cool to 7.7 percent, China National Petroleum Corporation has said, down from an estimated 10.8 percent growth last year.

This is despite the 50 percent drop in global oil prices since last June, which after hikes in consumption tax on fuel, has only been partially reflected in pump prices.

SUVs can burn up to a fifth more fuel versus lighter sedans with comparable engines, said James Chao, Asia head of IHS Automotive. Chinese SUVs tend, however, to have smaller engines than their U.S. peers and mandatory fuel economy targets mean fuel efficiency is increasing.

$1 = 6.2103 Chinese yuan renminbi Additional reporting by Jake Spring; Editing by Henning Gloystein and Ed Davies

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