In 2009 the Chinese auto market was seemingly heading for a disaster, consumer confidence was in the gutter and everyone was looking to the government for support, the government did step up to the challenge and offered several methods to deal with the on coming automotive crisis. The first thing they did was to lower sales tax on sub 1.6L cars from 10% to 5%, and set up a cash for clunkers scheme, and then later a cars to the countryside subsidy program which saw subsidies being given to rural buyers.
The 5% sales tax on sub 1.6L cars went down a storm, car markers could not produce cars fast enough to satisfy the ferocious demand for small cars, even 2010 the tax was increased to 7.5% but didn’t do anything to slow the demand for small cars. The Chinese car market hit 13.5 million vehicles in 2009, in 2010 its expected to be somewhere between 17.5 and 18 million vehicles sold, clearly the Chinese car market no longer needs government support in the form of low tax. One downside to the low sales tax is that Chinese companies were eager to boost their sales figures by firing out small displacement vehicles, not all of these small displacement vehicles were entirely green with regards to their tailpipe emissions, by canceling the low tax rate and introducing the green vehicle subsidy to a larger range of vehicles the government can push forward its plans for boosting car sales and also making sure that the Chinese automotive fleet on a whole improves its average gas mileage.
The Chinese Cash for Clunkers scheme is still on going and is slowly taking care of the older vehicles on Chinese roads and has so far taken over 347,000 cars off the road, the cost to the government has been around 4.97 billion RMB, on the other hand new cars sold thanks to the Cash for Clunkers scheme reached a total of 382 billion RMB. In November alone the Cash for Clunkers scheme took 63,000 old cars off the road, an increase of 66% over October.
January 2011 Predictions
The Chinese automotive media are throwing around wild speculations as to what will happen in 2011, the realists are estimating that sales will drop and the 30% growth between 2009 and 2010 will slow dramatically. On the other hand, you have the optimists that are saying that the difference between 2009 and 2010′s sales tax was just 2.5%, yet consumers were more than willing to buy cars in 2010 than in 2009.
In 2010 car manufacturers became greedy, they set their sales goal high after a great 2009 and this has resulted in a massive backlog of cars in dealerships which is a case of the manufacturer passing the buck. The collapse of dealerships around the nation due to a lack of rotation of capital is a major fear in economic circles.
How 2011 will play out for the Chinese car market is anyone’s guess at this stage, there are simply too many variables at stake to put an accurate spin on it. The low sales tax drove the back of companies such as BYD, Chery and Geely to the top of the sales charts and considerably boosted their sales performance in China thanks to their legion of small displacement cars, ‘hot cars’ such as the Audi Q5 and various VW models will still continue to be hot into 2011, but demand for smaller displacement models might drop off considerably as roads become more blocked, gasoline increases in price and the lack of car parking really hits the Chinese consumer where it hurts – in the wallet.
