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Night of frenzied buying prior to purchase limit portends slowing sales
Source: Bloomberg News |
July 23, 2012, Monday
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Print Edition
Print Edition
IN three years as a car salesman, Rooney Chen had never pulled an all-nighter. Then came June 30. At 9 pm that Saturday, when all 57 showrooms at the Race Course Automall in the southern Chinese city of Guangzhou had closed, the municipal government announced that to rein in congestion and air pollution, it would cap the number of new vehicle registrations at about half of last year's total and suspend new registrations for July - effective midnight. Caught by surprise, dealerships recalled their staff and stayed open until the next morning selling to buyers packing the mall the size of four soccer fields.
"June 30 was the first time in Guangzhou's history the mall's dealers ever worked through the night," the 28-year-old Chen said as he looked around the almost-deserted dealership where he sells BMWs. "Those three to four hours of mad, frenzied buying are now over," he said, noting that sales were considered to have beat the deadline as long as payment was received by midnight, even if the paperwork stretched into the wee hours. "It's been very quiet since."
Guangzhou's move follows similar restrictions in Beijing and Shanghai, illustrating how major Chinese cities are increasingly resorting to quotas to curb vehicle emissions and ease traffic congestion.
More controls
The new car restrictions in Guangzhou re-confirmed this trend of more controls," Ole Hui and Jeremy Yeo, auto analysts at Mizuho Financial Group Inc in Hong Kong, wrote in a July 3 report. "We think that more cities will follow suit as many cities are already overly polluted and congested."
In Guangzhou, the average vehicle speed has dropped to about 20 kilometers per hour (12 mph) and is expected to slow further next year, the government says. There were a total of 2.41 million vehicles in the city at the end of May, more than triple the number of available parking spaces. That spurred the city to make its June 30 announcement that just 120,000 new license plates will be issued in the 12 months from July 1.
"Some reports said 10 percent of our sales would be affected, but the impact on us would be very, very limited," said an executive at Zhongsheng Group Holdings Ltd, a dealer group with two stores in Guangzhou. Executives at the Beijing-based company said new cars sales in Guangzhou accounted for only 2.5 percent of its total.
Smaller cities
Even though Guangzhou's move will likely cut China's overall passenger car sales by only 1 percent, according to a research report by UBS, it may dent sales in the long run if other populous cities followed suit, some analysts said.
"Not only does a sales-restrictive move like this implemented in Guangzhou negatively impact consumer sentiment, it also might influence policymakers in other cities too," said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight. The key question is whether more numerous, second-tier cities - many of them provincial capitals - would limit sales as well.
But other industry insiders disagreed. "Even if further large cities in China do introduce car license controls, we don't expect it to affect the growth potential over many years to come," Andreas Hoffbauer, a VW spokesman in Beijing, said in an e-mailed response. "Second-and third-tier cities will make the largest contribution to growth in the Chinese auto market."
Despite Guangzhou's controls, authorities won't allow too many cities to impose limits on vehicle ownership because maintaining a stable economy is a priority, predicted Cao He, analyst with China Minzu Securities Co in Beijing.
Slowing demand
Nationwide vehicle demand has already slowed this year as economic growth has flagged and fuel prices have jumped. The latest curbs are a further blow for dealerships, where average inventory bloated to more than two months of sales by the end of May, a glut that the China Automobile Dealers Association has said is unsustainable.
Overall sales, including those of passenger cars and commercial vehicles, grew 2.9 percent in the first half from a year earlier to 9.6 million vehicles, according to the China Association of Automobile Manufacturers shows. It expects vehicle sales in 2012 to grow 5-8 percent.
"Previously, only dealers that sell local Chinese brands were under the inventory pressure, but now those handling foreign brands have also started to feel the pain too," Cui Dongshu, deputy secretary-general with China Passenger Car Association, told Reuters.
At many dealers selling BMW and other luxury models, inventory levels over the past few months have swelled to 60 to 90 days of stock, compared with more normal levels of 30 to 45 days, according to dealer executives. "The government needs to come up with some supportive policies," Cui said.
For Kobe Wu, marketing manager at a brightly lit and bannered Kia Motors Corp. dealership in Guangzhou's Tianhe district, the policy means auto distributors will have to focus on improving customer service to earn a slice of diminishing business.
"This policy will hit the auto industry hard," said the 27-year-old Wu, who together with his colleagues sold more than 50 cars on the night of June 30. "It will force dealers to change the way they do business."
The abrupt way the Guangzhou government introduced the new rules also left consumers miffed. Vivian Xie, a 29-year-old English teacher who had planned to buy a Honda Accord this month, was too late in hearing about the restrictions.
"We joke now that in Guangzhou you can buy almost nothing," Xie said. "Property prices are so high people can't afford apartments and now even if you wanted to get a car, you can't get one."
"June 30 was the first time in Guangzhou's history the mall's dealers ever worked through the night," the 28-year-old Chen said as he looked around the almost-deserted dealership where he sells BMWs. "Those three to four hours of mad, frenzied buying are now over," he said, noting that sales were considered to have beat the deadline as long as payment was received by midnight, even if the paperwork stretched into the wee hours. "It's been very quiet since."
Guangzhou's move follows similar restrictions in Beijing and Shanghai, illustrating how major Chinese cities are increasingly resorting to quotas to curb vehicle emissions and ease traffic congestion.
More controls
The new car restrictions in Guangzhou re-confirmed this trend of more controls," Ole Hui and Jeremy Yeo, auto analysts at Mizuho Financial Group Inc in Hong Kong, wrote in a July 3 report. "We think that more cities will follow suit as many cities are already overly polluted and congested."
In Guangzhou, the average vehicle speed has dropped to about 20 kilometers per hour (12 mph) and is expected to slow further next year, the government says. There were a total of 2.41 million vehicles in the city at the end of May, more than triple the number of available parking spaces. That spurred the city to make its June 30 announcement that just 120,000 new license plates will be issued in the 12 months from July 1.
"Some reports said 10 percent of our sales would be affected, but the impact on us would be very, very limited," said an executive at Zhongsheng Group Holdings Ltd, a dealer group with two stores in Guangzhou. Executives at the Beijing-based company said new cars sales in Guangzhou accounted for only 2.5 percent of its total.
Smaller cities
Even though Guangzhou's move will likely cut China's overall passenger car sales by only 1 percent, according to a research report by UBS, it may dent sales in the long run if other populous cities followed suit, some analysts said.
"Not only does a sales-restrictive move like this implemented in Guangzhou negatively impact consumer sentiment, it also might influence policymakers in other cities too," said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight. The key question is whether more numerous, second-tier cities - many of them provincial capitals - would limit sales as well.
But other industry insiders disagreed. "Even if further large cities in China do introduce car license controls, we don't expect it to affect the growth potential over many years to come," Andreas Hoffbauer, a VW spokesman in Beijing, said in an e-mailed response. "Second-and third-tier cities will make the largest contribution to growth in the Chinese auto market."
Despite Guangzhou's controls, authorities won't allow too many cities to impose limits on vehicle ownership because maintaining a stable economy is a priority, predicted Cao He, analyst with China Minzu Securities Co in Beijing.
Slowing demand
Nationwide vehicle demand has already slowed this year as economic growth has flagged and fuel prices have jumped. The latest curbs are a further blow for dealerships, where average inventory bloated to more than two months of sales by the end of May, a glut that the China Automobile Dealers Association has said is unsustainable.
Overall sales, including those of passenger cars and commercial vehicles, grew 2.9 percent in the first half from a year earlier to 9.6 million vehicles, according to the China Association of Automobile Manufacturers shows. It expects vehicle sales in 2012 to grow 5-8 percent.
"Previously, only dealers that sell local Chinese brands were under the inventory pressure, but now those handling foreign brands have also started to feel the pain too," Cui Dongshu, deputy secretary-general with China Passenger Car Association, told Reuters.
At many dealers selling BMW and other luxury models, inventory levels over the past few months have swelled to 60 to 90 days of stock, compared with more normal levels of 30 to 45 days, according to dealer executives. "The government needs to come up with some supportive policies," Cui said.
For Kobe Wu, marketing manager at a brightly lit and bannered Kia Motors Corp. dealership in Guangzhou's Tianhe district, the policy means auto distributors will have to focus on improving customer service to earn a slice of diminishing business.
"This policy will hit the auto industry hard," said the 27-year-old Wu, who together with his colleagues sold more than 50 cars on the night of June 30. "It will force dealers to change the way they do business."
The abrupt way the Guangzhou government introduced the new rules also left consumers miffed. Vivian Xie, a 29-year-old English teacher who had planned to buy a Honda Accord this month, was too late in hearing about the restrictions.
"We joke now that in Guangzhou you can buy almost nothing," Xie said. "Property prices are so high people can't afford apartments and now even if you wanted to get a car, you can't get one."
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