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China car dealers struggle amid price war, emissions standards

Tan KW
Publish date: Mon, 27 Mar 2023, 04:10 PM
Tan KW
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Chinese car dealers are struggling to stay afloat after efforts to clear gasoline-fuelled cars before tougher emissions standards come into force later this year were upended by a bruising price war.

Auto sales, especially of internal combustion engine cars, haven’t bounced back from pandemic restrictions even with hefty discounts doled out by major carmakers such as BYD Co, Toyota Motor Corp and Ford Motor Co. New car sales fell 20% in the first two months of 2022 from a year earlier, with sales of gasoline-fuelled cars down 30%.

With the next phase of China’s emissions standards to be implemented in July, dealers could be left with hundreds of thousands of cars that would become non-compliant, according to a March 23 article by the country’s Auto Dealers Chamber of Commerce, which has since been deleted from its WeChat account. The price war may have brought higher foot traffic but showrooms that didn’t offer discounts saw sales fall significantly, the article said.

Dealers already faced a challenging time last year, when Covid lockdowns disrupted auto production and sales. At one stage, not a single car was sold in Shanghai for a month. Just 20% of dealers operated at a profit last year and more than 2,000 closed in 2022, according to the Chamber of Commerce. The chamber, which counted over 8,000 dealers as members as of 2019 according to its website, didn’t respond to emailed requests for comment on why the article was deleted, and calls to its head office went unanswered.

"Old tricks aren’t working the way they did. These band-aid measures to fix structural issues in the market clearly aren’t sustainable and can’t last for too long. Cutting prices and doling out incentives will raise costs and eat into already-thinning margins. But perhaps the painful fallout is what’s needed," said Bloomberg Opinion columnist Anjani Trivedi.

To give dealers more breathing room, the chamber called for the new emissions standards be delayed until January 2024, and urged automakers to stop producing vehicles that don’t comply with the new measures.

Another distributor body, the China Automobile Dealers Association, also sounded the alarm. While price wars have occurred in the past, this one is particularly disruptive because outside entities such as provincial governments have joined in with subsidies to support their local carmakers, it said in an article published on Friday.

The various levels of government should instead launch fiscal and financial measures that will lift overall spending and ensure a fair and orderly car market, the article said. Auto manufacturers need to change their traditional production models to follow the changing tastes of the market and set up compensation for dealers who may need to clear stock, the association said.

 


  - Bloomberg

 

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