Big US SUVs a hit with Chinese car buyers

While small vehicles remain the straw that stirs the Chinese auto market, US automakers see opportunity in a growing taste for big sport utility vehicles in the world's largest vehicle market.

SUV sales in China rose 54% in the first two months of this year, well ahead of the 10% rise for the overall Chinese auto market.

General Motors Co and Ford Motor Co executives said on Monday that Chinese consumers want SUVs, despite annual punitive taxes on vehicles with powerful engines that will go into effect in 2012.

GM is about to launch the mid-size SUV Chevrolet Captiva in China and sees even greater opportunity for smaller SUVs, Tim Lee, president of the US automaker's international operations told reporters.

The redesigned Captiva about the same size as a Chevy Equinox is just one of about 20 SUVs to debut at the Shanghai show, according to JD Power and Associates.

The US automakers are behind in Chinese SUV market, but see growth opportunities in the segment that has the deepest market penetration and was pioneered in North America.

None of the top-selling SUVs in China are made by US automakers. Lee of GM suggested that making smaller SUVs than the Captiva and its 2.4 liter engine could be in the offing.

"In China in particular, we think there will be extraordinary growth in what we consider (the small car) segment, even smaller than Captiva," he said on the sideline of the Shanghai auto show. "Time will tell."

China passed new rates for vehicle taxation based on engine size in February that go into effect on January 1, 2012. The rates are designed to entice consumers to buy small cars. Currently, engine size does not directly affect vehicle taxes.

The Chevy Captiva has a 2.4 liter engine, so owners would be taxed as much as 1,200 yuan (USD 184), compared with a range of 60 yuan (USD 9) to 540 yuan (USD 83) for the smallest of cars in China.

Between 2007 and 2010, more than 1.3 million SUVs were sold in China as demand rose more than 100 percent on an annual basis, according to GM. That is a drop in the bucket in China, where light vehicle sales topped 17.2 million vehicles last year, but a nice number nevertheless.

Ford China Chief Executive Joe Hinrichs told Reuters he was seeing big growth in the segment, where the GM rival has launched the Edge model.

Independent China auto market analyst Michael Dunne said the Chinese have "a love of big and a love of SUVs" and said U.S. automakers were in the "sweet spot" as that demand rises.

"US SUVs in particular are really a hot item in China," he told reporters. "They love the big GM, Ford and Chrysler SUVs. They're a real statement vehicle. It's 'I want one of those' and there's no shortage of money."

China has been trying to push consumers toward smaller, more fuel-efficient engines, but does not want to kill off what has been a lucrative source of revenue, Dunne said.

Chinese officials do not have to fear too much, however, because sales volumes are not high enough for any automaker to justify building them locally, he added.

The specific tax by engine size will be determined by provincial governments within the ranges set by the Chinese government.

The upper end of the range for the smallest cars, less than 1 liter engine size, is 360 yuan (USD 55), rising to 540 yuan (USD 83) for 1.6 liter engines, 660 yuan (USD 101) for 2.0 liter engines, 1,200 yuan (USD 184) for 2.5 liter engines and up to 2,400 yuan (USD 368) for engines up to 3 liters.

Engines up to 4 liters will be taxed as much as 3,600 yuan (USD 551) per year and 5,400 yuan (USD 551) for engines 4 liters or larger.