Tags: AS | China | Auto | Boom

Rural Auto Sales Boost China to Top Seller

Tuesday, 22 Dec 2009 03:00 PM

 

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Minivan salesman Zhu Yi has a problem that most auto dealers elsewhere would happily swap for their own — he doesn't have enough vehicles to satisfy customer demand.

"Sales are exploding," says Zhu, a 32-year-old manager at a General Motors Co. joint venture dealership in Chengdu, pointing to charts on his laptop that vividly plot the steep incline.

Car buyers in Chengdu, a grimy city in southwestern China's Sichuan province best known for its giant pandas and spicy food, face waits of up to several weeks for some popular models, he says.

"We simply don't have the cars people want. Sales could be climbing even faster."

As growing numbers of Chinese shop for their first vehicles, or trade up for newer models, sales in China's immense hinterland are booming, encouraged by tax cuts, government subsidies and growing consumer spending power.

In regions striving to catch up with relatively well-off coastal cities, families and small businesses are gladly swapping scooters and bicycles for the comfort and convenience of the automobile.

The supercharged growth has propelled China ahead of the United States as the world's biggest auto market and provided a lifeline for automakers like General Motors and Toyota Motor Corp. as sales crashed in other markets.

The government's role in spurring the market has been crucial but China's still low level of car ownership points to the potential for decades of strong growth even as some analysts warn the future holds tougher competition and dwindling profits.

To counter a slowdown late last year as the global financial crisis unfolded, the government halved taxes on purchases of small autos and is spending 5 billion yuan (about $730 million) on subsidies for purchases of light trucks and minivans in the countryside, where most of China's 1.3 billion people live.

Earlier this month, the purchase tax was raised to 7.5 percent, though subsidies also increased.

Happy with the results from this year's rescue package for the industry, Beijing is leery of risking a relapse, analysts say.

"The message sent by the government is that they will not let the auto industry weaken, especially not in 2010," said Jia Xinguang, chief analyst at China National Automotive Industry Consulting & Developing Corp., an investment management company.

Enticed by the potentially huge market, automakers have poured billions of dollars into ventures here in the past two decades. Total sales this year forecast to shoot past 13 million units, up a third from last year's 9.8 million.

Meanwhile, sales in the U.S. have faltered, with January-October vehicle sales totaling 8.6 million, compared with Autodata CorpChina's figure for 10.9 million in China during the same period.

The revival in sales has been opportune for GM as it struggles to restructure following a spell in bankruptcy court. Including minivans and other passenger cars, SAIC-GM-Wuling, GM's minivehicle venture in China, led nationwide sales in November, with 83,753 units sold.

Car sales in the main cities like Beijing and Shanghai are robust, but the zippiest growth has been in so-called second, third and fourth-tier cities. Chengdu, a city of 11 million, now ranks in the top four auto markets, with sales jumping almost 60 percent over a year earlier in September, to 22,585 units.

The major city nearest the epicenter of a catastrophic May 2008 earthquake that left almost 90,000 people killed or missing, Chengdu did not suffer extensive damage, but it is now booming as money floods in to finance rebuilding in the quake zone.

Along the main roads ringing the city and to the airport stand cluster after cluster of newly built auto dealerships — luxury brands like Jaguar, Porsche and Rolls Royce as well as more affordable foreign and domestic brands.

Zhu's dealership, which sells mainly SAIC-GM-Wuling compact minivans, has seen sales more than double to 37,000 units so far this year, he says.

The vans, which seat seven and go for 30,000 yuan-50,000 yuan ($4,400-$7,300), are the country's biggest selling model, favored mainly by small, private businessmen like Wu Weizhong, a glove seller who was peering under the driver's seat, where the vehicle's engine is located.

"That's the heart of the vehicle, the most important part!" Wu said before jumping inside to try out the seat and steering.

Chengdu's dusty, smog-choked roads are jammed with a smorgasbord of brand names — big Toyota and Lexus SUVs, sleek Mercedes Benz, Buick sedans and smaller, compact Suzukis and Peugeots. Along with the foreign brands are plenty of Changans, Cherys and BYDs — fast-growing domestic automakers that are grabbing market share by catering to customers seeking affordable, fuel efficient cars.

The proliferation in choice has made buyers more discerning.

"Before, it was a seller's market, and people would just buy whatever was available, but now they have all sorts of requirements," says veteran saleswoman Chen Lin, who moved to BYD, a battery maker that branched into automaking this decade, looking for new opportunities.

BYD's F3 compact is currently the country's best-selling sedan, and nine out of 10 of Chen's customers are first-time car buyers, though growing numbers of visitors to her brightly-lit dealership on the outskirts of town are looking to trade up to the automaker's F6 midsize sedan, she says.

"People in Sichuan are very practical. They are focused on value for money, not prestige. So our cars seem to suit the local market," Chen said.

Some, however, doubt the good times will last.

Already, overall vehicle production this year has outstripped sales, as of the end of November, suggesting that inventories may rise as output catches up to demand, which could cut into profits.

And as the market matures, automakers here, like their counterparts in the U.S. and Europe, will face the same problems they've struggled with in the past: too much production capacity and pressure to lower prices.

Strong sales help, but they are no guarantee of long-term profitability, said Zhang Xin, an analyst at Guotai Junan Securities in Beijing.

"How much can they earn if they're squeezing their profits to get better sales figures?" Zhang said.

But with car ownership at only 40 per 1,000 people, and even less in the countryside — a tenth that of the U.S. — dealers like Zhu and Chen have few qualms about the industry's future.

"Customers are buying because, quite simply, they need a car, their incomes are rising, and they now have the kind of purchasing power they need to buy them," Zhu says.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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