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Subsidies for small cars sputter as effective strategy to go green
By Lu Nengneng |
June 21, 2012, Thursday
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Print Edition
Print Edition
CHINA is dangling new carrots in front of car buyers to coax them behind the wheels of smaller-engine vehicles, amid doubts that such enticements will really make much of an impact.
Early last month, the Chinese government announced it has set aside 6 billion yuan (US$952 million) for subsidies of up to 3,000 yuan on each vehicle with an engine capacity of 1.6 liters or less and fuel consumption of no more than 6.3 liters per 100 kilometers.
A few weeks later, the southwestern city of Chongqing unveiled the country's first local incentive program. It promised a 6 percent subsidy on the sales price of cars and mini-buses with engines of 1.6 liters or less. The subsidy was capped at 3,000 yuan per vehicle.
Following the new policy announcements, May deliveries of the smaller-engine vehicles soared 21 from a year earlier to 638,500 units. Cumulative volume sales in that segment for the year turned positive for the first time. In the first five months, sales rose 3.4 percent to 3.1 million units, turning from a cumulative drop of 0.5 percent in the January-April period.
Still, May's promising results came against a backdrop of a 16 percent increase in vehicle sales across all segments. Analysts attributed the uptick to seasonal factors and competitive pricing.
China has done a lot of experimenting with subsidies to boost the auto industry. At the end of last year, a 10 billion yuan stimulus program expired. The new round is smaller in size and narrower in scope.
Fewer models
"The latest government program covers fewer car models than in the previous years after raising the energy-efficient threshold, and the money allocated can subsidize only 2 million units, compared with more than 3 million units last year," said Zhang Yu, managing director of Automotive Foresight.
About 100 car models fit the subsidy criteria this year, a significant drop from the 420 qualified models under the previous program, which covered fuel efficiency of up to 6.9 liters per 100 kilometers. In the end, price may have more impact on buyer sentiment than government subsidies.
Zhang said small-engine vehicles, with less roomy comfort, don't have the same appeal to consumers. If the government really wants to popularize their use as part of its green-car strategy, it should offer more attractive deals, such as a rebate on the vehicle purchase tax, which accounts for up to 10 percent of a car's retail price.
Analysts express doubts that local incentive programs such as the one in Chongqing will be repeated across China.
"The move by Chongqing is largely to boost the sales performance of Chang'an Automobile, which is a big producer of vehicles covered by the subsidy program," said Ye Sheng, auto research director at Ipsos, referring to the Chongqing-based carmaker.
Other cities, of course, have major local carmakers they would probably like to help. Among the larger manufacturers of small-engine vehicles in China are Changchun-based FAW, Liuzhou-based Wuling, Xi'an-based BYD as well as Wuhu-based Chery.
"But even if they all follow suit to introduce local stimulus programs, we still cannot expect much from the market response," said Ye. "There is not much untapped demand left for small-engine vehicles after all these years of subsidy-fueled growth, since consumers buy new cars once every 4 to 5 years."
Early last month, the Chinese government announced it has set aside 6 billion yuan (US$952 million) for subsidies of up to 3,000 yuan on each vehicle with an engine capacity of 1.6 liters or less and fuel consumption of no more than 6.3 liters per 100 kilometers.
A few weeks later, the southwestern city of Chongqing unveiled the country's first local incentive program. It promised a 6 percent subsidy on the sales price of cars and mini-buses with engines of 1.6 liters or less. The subsidy was capped at 3,000 yuan per vehicle.
Following the new policy announcements, May deliveries of the smaller-engine vehicles soared 21 from a year earlier to 638,500 units. Cumulative volume sales in that segment for the year turned positive for the first time. In the first five months, sales rose 3.4 percent to 3.1 million units, turning from a cumulative drop of 0.5 percent in the January-April period.
Still, May's promising results came against a backdrop of a 16 percent increase in vehicle sales across all segments. Analysts attributed the uptick to seasonal factors and competitive pricing.
China has done a lot of experimenting with subsidies to boost the auto industry. At the end of last year, a 10 billion yuan stimulus program expired. The new round is smaller in size and narrower in scope.
Fewer models
"The latest government program covers fewer car models than in the previous years after raising the energy-efficient threshold, and the money allocated can subsidize only 2 million units, compared with more than 3 million units last year," said Zhang Yu, managing director of Automotive Foresight.
About 100 car models fit the subsidy criteria this year, a significant drop from the 420 qualified models under the previous program, which covered fuel efficiency of up to 6.9 liters per 100 kilometers. In the end, price may have more impact on buyer sentiment than government subsidies.
Zhang said small-engine vehicles, with less roomy comfort, don't have the same appeal to consumers. If the government really wants to popularize their use as part of its green-car strategy, it should offer more attractive deals, such as a rebate on the vehicle purchase tax, which accounts for up to 10 percent of a car's retail price.
Analysts express doubts that local incentive programs such as the one in Chongqing will be repeated across China.
"The move by Chongqing is largely to boost the sales performance of Chang'an Automobile, which is a big producer of vehicles covered by the subsidy program," said Ye Sheng, auto research director at Ipsos, referring to the Chongqing-based carmaker.
Other cities, of course, have major local carmakers they would probably like to help. Among the larger manufacturers of small-engine vehicles in China are Changchun-based FAW, Liuzhou-based Wuling, Xi'an-based BYD as well as Wuhu-based Chery.
"But even if they all follow suit to introduce local stimulus programs, we still cannot expect much from the market response," said Ye. "There is not much untapped demand left for small-engine vehicles after all these years of subsidy-fueled growth, since consumers buy new cars once every 4 to 5 years."
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