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MARGINAL TALK McKinsey & Company ( mckinsey.com ) performed a survey of Chinese automotive consumers in July 2017, a group of some 5,800 people who bought cars within the preceding 12 months, people who were selected from locales that represent half of the Chinese population and which contribute to 90 percent of China's urban GDP. And even though I'd like to think that I keep a fairly close finger on the pulse of the global auto industry, seeing some of those results were akin to sticking said finger into an electrical outlet. The word shocking isn't hyperbole. The McKinsey researchers see that through 2022 there will be a "modest-for-China" annual growth rate of 5 percent. That's no big deal, right? Five percent. However, that number, they point out, represents 52.6 percent of the growth in the global car market. More than half of all of the growth. On the planet. The second largest contributor to global car-sales growth is "Rest of World." The number there is a sizable 34.9 percent. That leaves three other designated locales: Europe, the U.S. and India. India's growth is projected to represent 15.9 percent of global growth. Europe is down to but 1.7 percent. But even that 1.7 is a whole lot more robust than what is anticipated in the U.S. market: minus 5.2 percent. Realize that this doesn't say that people in the U.S. are going to be buying fewer cars overall, just that in terms of the contribution to global auto growth it is going to be rather insignificant. Every major automaker in both the U.S. and Europe look to China as a place where they can get a considerable number of units moved. The Chinese consumer—not unlike consumers in Paris or L.A.—is often brand conscious, so premium products like Cadillac and BMW tend to do well in China. (The Chinese market is bigger for Cadillac than its home turf is.) The premium category is strengthening in China. The McKinsey survey found that in 2106, 55 percent of the respon- dents who replaced their vehicle or added another did so with GARY S. VASILASH, Editor-In-Chief a more expensive purchase than their previous. The researchers reckon that cars costing more than 250,000 renminbi (about U.S. $37,600) will have a compound annual growth rate of 10.5 percent, while those below that figure will increase just 4.1 percent. (Keep in mind that in 2016 the vehicle sales in China were 23.9-million, so "just 4.1 percent" is nothing to sniff at.) The good news is that only 8 percent of Chinese customers think that local brands have the kind of upscale swagger as vehicles from elsewhere. But the situation in SUVs ought to be exceedingly cautionary for the Western premium brands. First know that SUVs are the vehicles gaining the most traction in China, with the vehicles accounting for 66 percent of the Chinese auto market growth over the past four years. McKinsey found that in the entry-level SUV market, which is exploding, local brands grew 94 percent in the B-segment and 90 percent in the C-segment. Apparently, the competition in those segments is so fierce that there is little if any profit- ability. So what does a local OEM do? Like other car companies elsewhere: provide a greater number of premium products. Although the McKinsey researchers say that how successful this will be for those Chinese companies remains to be seen, they also determined that 38 percent of the mass-market middle class and 26 percent of the affluent have "good" opinions of local brands, so arguably it may just be a matter of time before the local offerings grow in both prestige and appeal. Of course, there is another factor at play, one that could have huge consequences for all automakers, Chinese domestic as well as foreign. Surveying the "next generation of China's car buyers" they found that 52 percent can think of not having a car, 36 percent think that having a car isn't as important as it once was and 38 percent would give up their car if they received free shared mobility in return. Again, think of those percentages in the context of the magnitude of the overall market. What happens to the global car market if, within the not-too-distant future, some 40 percent of young Chinese who would otherwise buy a car decide to forego the purchase? The repercussions would be massive from Shanghai to Stuttgart to Detroit. But let's let that somewhat apocalyptic scenario pass. There is another finding that, again, can make a whole lot of difference to the fortunes of OEMs. Younger Chinese car buyers are becoming increasingly demanding of having the latest infotainment technologies in their vehicles. While that might seem the same as anywhere, McKinsey found that 79 percent of consumers will switch brands in order to get the tech they want, compared with 37 percent in the U.S. and 19 percent in Germany. The message here is Detroit needs to stay close to Silicon Valley as silicon may matter more than anything else. Gary Vasilash invented this magazine in 1996 and wrote a column for its predecessor publication starting in 1987. Chances are, if you're reading this, you know him by now, possibly for a long, long time. Considering China 6