Auto Market Mired in Gloom.doc

1、1Auto Market Mired in GloomChinas auto market is stepping into a buyers mar- ket. However， auto makers and franchisers do not seem ready for the sales slowdown. On August 3， Beijing Hyundai Motor Co Ltd.， a joint venture of South Koreas Hyundai Motor Co.， announced to lower the guide price of SUV-ix

2、35 model by 20，000 yuan， which came just a month after a 30，000 yuan cut on the guide price of the New Santa Fe model. According to the South Korean automaker， the move is aimed at increasing its competitiveness in China， where it is due to launch the New Tucson SUV in September. Hyundai Motor is no

3、t the only carmaker to do so as a sales slowdown grips the worlds largest auto market. Similar moves have been made by General Motors Co and Ford Motor Co in China， where auto sales are expected to grow 3% this year， less than half the pace of the previous year. Unlike Hyundai Motor and General Moto

4、rs which directly reduced the retail prices of some car models， Audi announced to spend 1.2 billion yuan subsidizing its franchisers in July. It is worthy to note that as early as December 2014，the auto 2giant has provided a 2.05 billion yuan subsidy to its franchisers. Volkswagen AG has also increa

5、sed discounts on several popular vehicles in the Chinese market， Over the first half of this year， Chinas auto market experienced a most tough period， as the countrys economy expanding at its slowest pace in a quarter of a century and a stock market slump depresses demand for cars and other consumer

6、 goods. The combined efforts of auto makers to launch more than 100 new car models and provide considerable price cuts， as well as conduct innovative marketing still failed to reverse the downtrend in terminal sales. According to experts， price cuts and considerable subsidies cannot change the curre

7、nt survival predicament faced by car franchisers. It is expected that there is still two-year tough time to go for car franchisers. A Wave of Price Cuts May Ensue In response to falling sales， auto makers often lower the prices. However， different from the past when auto makers asked franchisers to

8、reduce prices for sales promotion， they made a high-profile announcement to lower official retail 3prices of some car models this time. Hyundai Motors sales were on a downtrend trajectory in China in the first half of this year. While sales of its compact car models such as Verna， MDAvante and MISTR

9、A remain flat， sales of its most highly-anticipated SUV models， including middle-class New Santa Fe and once-popular SUV ix35， are squeezed by the price decreases in the luxury SUV models and the launches of self-branded SUVs. Besides， in the second quarter， the automakers shipments in China fell 14

10、% on an annual basis， leading it to pledge further incentives in order to compete with Chinese automakers. Obviously， Hyundai Motors move to lower the guide prices on the two models aims to quickly pick up the sales and then help its franchisers out of their current predicament. An unprecedented sto

11、rm of price cuts is in the making， which heralds a reshuffle of Chinas auto market. Shanghai Volkswagen Motor Co Ltd was the first automaker who cut prices to attract buyers this year， which soon brought a domino effect. On April 5， Shanghai Volkswagen， a stubborn automaker that has insisted on no p

12、rice cuts and no discounts for six years， unexpectedly announced to lower retail prices of 4several well-selling car models. Some say that Shanghai Volkswagens move is aiming at subverting the competitive landscape in the worlds largest auto market， leaving a little or even no room for new-comers to

13、 overtake it. Changan Ford was the first one who followed Shanghai Volkswagens move. Later， Beijing Hyundai， and FAW Volkswagen Automotive Co Ltd also joined the lineup. Whats more， on May 12， Shanghai General Motor Co Ltd announced that to adjust the market retailing prices of 40 car models. Such a

14、 big incentive soon roiled the market， pushing the fierce competition among automakers to a new stage. However， the terminal auto sales are still lackluster amid the all-out price war， due to the combined effect of traditional off-season and investment boom. Under the backdrop， the price war in the

15、car market grows in intensity， brewing a new round of price cuts. From the current situation， it is evitable for other automakers to follow the wave of price cuts or take other sales promotion measures to compete with rivals， according to Yan Jinghun， vice general manger of the Beijing Asian Games V

16、illage Automobile Trade Exchange. Yan also believes that the luxury auto market wont see a 5large-scale price adjustment and the retailers are more likely to lower prices and conduct promotion in the outlets. “Reducing the official prices is a short-term bailout with limited effects， ” says an analy

17、st， who does not wish to be named. “In the short run， price cuts help maintain the auto brands market share against its rivals. However， the fundamental problem is far from being solved yet. Based on the current market performance， price cuts are unlikely to help the automakers reverse the downtrend

18、. ” Considerable Subsidies for Franchisers In addition to reducing official prices， automakers also hike subsidies for franchisers. As early as the second half of last year when Chinas auto market growth obviously slowed down， many automakers stepped up efforts to bail franchisers out of the predica

19、ment， subsidizing franchisers in many ways. Among them， luxury automakers provided the most generous subsidies. As of the end of July， the combined amount of subsidies franchisers got from Audi and BWM reached nearly 10 billion yuan. However， such a high incentive still failed to remove the market c

20、oncerns. According to Shen Rong， vice executive secretary of the China Automobile Dealers Association， 6squeezed by the long-drawn high inventory level and market downturn， most of franchisers are mired in a predicament with cash running out and some have came close to going into liquidation. Accord

21、ing to Shen， the profit margin from selling a new car only is less than 2%， so meager that the franchisers cannot afford the bank interest， not to mention to make a profit in running a 4S store. “Giving franchisers such considerable subsidies is just a stop-gap measure， ” says Shen. “If the automake

22、rs want to fundamentally change the situation， they should adjust their position to give more right to franchisers.” Main Cause： Overcapacity “The slowdown in auto sales directly reflects the sluggish demand， ” says Zhou Lei， a senior commentator in the auto industry. Domestic auto sales have exceed

23、 the 20-million-unit mark， which means a higher base. In order to maintain twodigit growth， China needs to increase auto sales by 2 million units at least every year. “The countrys economy growing at its slowest pace in twenty years， directly leading to a slump in car demand from the high-paid group

24、， ” Zhou adds. 7Besides， the purchase limit imposed on private cars also depresses the consumers demand. Since early 2014， major cities in China， including Tianjin， Hangzhou and Shenzhen， have announced to impose limit on private car ownership， suppressing the rigid demand for cars. “As the worlds l

25、argest auto market， China is haunted by the serious overcapacity problem， ” Zhou says. In 2015， Chinas auto output is expected to grow by 20% on an annual basis to reach 50 million units. However， new auto sales are expected to reach 25 million units over the period， up 7% from 2014. According to Zh

26、ou， the number of stock cars in the country totals 3 million units， equal to half Japans auto sales. Experts say that the main reason that caused the auto overcapacity lies in the car investment boom started from 2012 when automakers predicted that the market would con- tinue to expand. A Wave of Sh

27、utdowns May Ensure Some insiders are downbeat on Chinas auto market. According to an executive manager at an automobile electronic products company， China is expected to see a wave of 4S store shutdowns by December this year. 8He points out that his company had to pay a considerable margin to sell i

28、ts products in 4S stores previously. If a company wants to sell its products in 4S stores run by Pangda Automobile Trade Co Ltd， it needs to pay 1 million yuan as margin. Zhou also says that although automakers offer supports to franchisers in many ways， 4S stores in China will still face the toughest time in the next two years.