Growing demand for SUVs lifts production in China

Drive outside the city limits of Chongqing, China, and it hits you immediately: This is SUV country.

In fact, Chongqing, along with many other cities and small towns of inner China, has become one of the hottest markets for automakers to market utility vehicles.

"Like most other parts of the world, we see strong SUV demand," said Dieter Zetsche, Daimler (DAI-DE) chairman and head of Mercedes-Benz's car division, at the Shanghai Auto Show on Monday. "SUVs are clearly growing stronger than sedans and other body types. Therefore, the SUV market is clearly the place to be."

At the Shanghai Auto Show, which opens to the public on Wednesday, Zetsche unveiled two new utility vehicles that Mercedes will sell in China: the GLC and GLE. The GLE is also being built in Beijing.

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The models, which fuse together elements of an SUV and a coupe, are the latest two to latch onto the boom in utility vehicles. Last year, automakers built 4.32 million utility vehicles in China, a 36.7 percent increase, according to the consulting firm IHS Automotive. By 2018, IHS estimates SUV production in China will top 7 million, with a high percentage of them headed for buyers living deep inside the country.

The reasons are twofold.

For one, the growing economies in China's smaller cities are driving overall auto sales higher, including those of SUVs. For another, Chinese consumers are similar to American auto buyers, in that they want bigger vehicles with more utility.

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"It is all about the SUV in the inner part of China and the smaller cities," said James Chao, an analyst with IHS Automotive in Shanghai. "Sedans are of course very popular, but SUVs have really caught the imagination of the Chinese consumer in those core markets."