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Warning light flashing on Chinese auto market. Demand nose-diving before Olympics

7, 18. 2008

   "Credit crunch is occurring. Gasoline prices are soaring. Stock prices are sliding, while natural disasters are happening endlessly. No one can be optimistic about car sales in 2008. It's likely that the coldest winter in four years since 2004 is coming."

   This was a view expressed by the head of the Beijing Asian Games village auto trade market, which supervises the largest auto market in Beijing.

   The car sales in China have been declining sharply since April 2008. There was no sign of recovery in June. It may be said that the growth of the auto market has hit the ceiling earlier than expected.

Hit by rising gasoline prices

   The car dealers' display places in Beijing used to be always crowded with people visiting to see the cars on weekends. But the situation drastically changed after April. Less people were buying cars in cash, and the number of the visitors also sharply decreased.

   According to statistics provided by the automobile manufacturers association of China, the auto sales in April went down by 13.65% on year. A little recovery was seen in May, but the sales still represented a decrease of 6.66% from the same month of last year.

   Shedding water on the sales condition, the decision was taken suddenly on June 20 that the gasoline price would be raised by 16% from 5.34 yuan to 6.20 yuan per liter. Residents of Beijing were seen making long lines at filling stations to fill up their cars before the price was risen at midnight of that day. The Chinese money of 6.20 yuan is about 100 yen in Japanese money. It does not seem much, but an ordinary worker in Beijing would be paid only enough hourly wage to buy two liters of gasoline. The gasoline price is sharply rising. But it is still cheap by the international standard, meaning that the gasoline price is likely to go up further in the future.

   Driving of cars will be restricted in Beijing while the Beijing Olympics and related events are conducted between July 20 and September 20. The cars to be allowed to be driven will be decided by whether the last digit of the registration number is an odd or even number. Because of this measure, "people would tend to refrain from buying cars until September 20," a person at a car dealer said.

   The sliding stock prices are also overshadowing the car market. As of July 2, the Shanghai stock price index was hovering around 2,651, down as much as 57% from 6,124 registered on Oct. 16, 2007. The boom of stock trading has gone, and car sales have gone down.

"Dealers' storehouses are full everywhere."

   There has not been a report so far that carmakers in China began to reduce their productions. "Dealers' storehouses are full everywhere," said the manager of the sales agent of Citroen cars.

   Under contract with makers, the incentives paid by the makers to the sales agents are reduced unless the agents sell certain amounts of cars. "That is why the sales agents are replenishing their stocks even if the demand is going down as it is," the agent manager explained.

   The storehouses of more than 10 sales agents for five carmakers, including Shanghai GM, Dongfeng Citroen, Beijing Hyundai and Guangzhou Honda, have all been found out to be stocked up with cars at to higher levels than normal, a reporter for an economic weekly magazine said.

   "Beijing is now right in the middle of summer, but as far as the car dealers are concerned, it is now winter." This is what is generally said in Beijing. The choices are step on the accelerator to break through the warning light, or step on the brake to stop. It must be a difficult decision for business firms concerned to make.

(from J-CAST Beijing Bureau)

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