Chinese Auto Sales Are Declining Rapidly; Dealers Begin Price Wars

Recently implemented policies have done little to help flagging industry
November 8, 2018 Updated: November 8, 2018

Under the double blows of the Sino-U.S. trade war and domestic economic pressure, China’s auto industry sales have shown negative growth for the first time since 1990.

Since June 2018, China’s auto industry has experienced a continuous decline in sales. The latest data shows that car sales in the first three weeks of October dropped by 23 percent compared with the same period last year, and are expected to decline by another 20 percent, according to the China Passenger Car Association (CPCA), as reported by the state-run Zhejiang Daily Online on Oct. 31.

An analysis by Nomura Securities expects that Chinese auto sales will decline by 7.5 percent in the fourth quarter, and the annual sales volume will drop by 1.6 percent.

Poor sales have resulted in higher inventories among auto dealers. The latest Vehicle Inventory Alert Index (VIA) published by the CPCA shows that the VIA in October was 66.9 percent, a year-on-year increase of 17 percent and the highest in the last three years. That month, the VIA exceeded an official warning threshold.

Meanwhile, auto parts are among the long list of Chinese imports that the United States has slapped punitive trade tariffs on. Experts predicted that this would drive up prices of auto vehicles manufactured in China. The Chinese regime then imposed retaliatory tariffs on U.S. car imports.

According to industry professionals, the Chinese auto market is experiencing a crisis that preferential government policies that were recently implemented have done little to alleviate.

The National Development and Reform Commission has proposed reducing the purchase tax on passenger cars from 10 to 5 percent to promote new car sales, but the policy has yet to be officially implemented.

Wu Zhoutao, vice president of BAIC Motor Co., LTD. and general manager of BAIC Motor Sales Co. LTD. in Beijing, told Securities Daily on Nov. 6 that he believed that a sales tax reduction would stimulate the automobile market in the short term while having little effect on low consumer confidence in the long run. Wu said that the authorities should instead help boost personal and corporate income.

Facing inventory pressure, car dealers have started engaging in price wars. Many new vehicles are going for prices lowers than those of used cars, including luxury brands, independent Chinese weekly newspaper the Economic Observer reported on Nov. 6.

The price drop has affected the profitability of the automotive industry. Only 32.8 percent of car dealers nationwide turned a profit between January to September this year, while 40.5 percent of dealers lost money, said the CPCA’s research and analysis report from that period, the Economic Observer reported on Nov. 2.

Beijing Business Today reported on Nov. 5 that the third-quarter earnings report of JAC Motors, a Chinese state-owned automobile and commercial vehicle manufacturer based in Anhui Province, shows the company’s total operating revenue in the first three quarters of this year as 36.31 billion yuan, increasing 2.22 percent, but net year-on-year profits fell by 78.13 percent. AC Motors received 1.028 billion yuan ($148.25) in government subsidies, an increase of 739 million yuan over the same period last year.

Wu Zhoutao said based on the current situation, car manufacturers have begun a knockout competition to determine which firms will stay in the market or be weeded out.

Ling Shan of Sound of Hope Radio contributed to this report.