Housing and Stock Markets Weaken Auto

　　Housing and stock markets are playing a negative role and weakening consumers' confidence.

　　Recently, Qu Gang, the Regional Director of Dongfeng Citroen Beijing was busy organizing regional marketing activities. He said, “The competition is too intense and there is no time to go out and play.” Just like Qu Gang, all the regional heads of automobile brands have been a little nervous recently. In May auto market is faced with a downturn and there have been less visitors and orders, down by about 20%.

　　The most fundamental reason for the downturn of auto market is the declining of consumers' confidence and volatility of stock and housing market. Oil prices went up and purchase tax concessions became less or even canceled. Several negative factors cooled down the consumption atmosphere and auto market is now facing a tough season.

　　Phenomenon

　　In May the amount of visitors and orders fell by nearly 20%.

　　In the first quarter the performance of auto market was quite good and many brands achieved satisfactory sales. As to the overall industry, the production and sales increased by more than 70%. Though the sales in April dropped compared with previous month, the market situation was not that bad. Shi Hong, the Marketing Director of Shanghai GM Buick pointed out the retail sales in April increased by 34% year on year with the sales of Regal and Lacrosse surging by 58%. Qu Gang said that in April the situation of Beijing market was quite good. Though the sales were less than that of last December-2000 units, Dongfeng Citroen still sold out 1600 units. Wu Jiang, the Regional Director of Dongfeng Peugeot, revealed that the sales of 207 and 307 increased by 30% and taking 408 into account the growth would reach more than 50%.

　　In May the growth of overall market turned slower and all the brands felt a little nervous. Shi Hong said, in the first week of May, the situation was pretty satisfactory due to the holiday. However, from the third week the amount of visitors and orders suffered from a 15% to 25% decline. In addition, medium and high-end were weakened as well. Qu Gang told the Beijing Youth Daily that in May the sales would total up to 1200 to 1300 units, down compared with previous month.

　　It seems that luxury car manufacturers are facing a better condition. Li Long, the Director of Northern China Market of BMW told the Beijing Youth Daily that during the downturns such as financial crisis, the segment of luxury vehicles suffered from less impacts compared with the overall market.

　　Dealers have been running out of patience and carrying out promotion activities.

　　He Xinhai, the Regional Sales Director of Dongfeng Nissan Beijing said that the amount of visitors to shops had declined and general sales entered a stable period. The sales are almost as same as that of last year and there is a great increase compared with the year of 2008. However, in 2010 most auto businesses are facing large sales increments and only with more buyers can auto market absorb such kind of increments. If the sales situation is quite flat, then digestion of higher inventories will become slower, causing inventory pressure.

　　The Beijing Youth Daily learned that some dealers for a number of brands are running out of patience facing a cooling market. The enhancement of promotions is no longer a secret. For instance, in medium and high-end auto market, the preferential offer is usually more than ten thousand yuan and even up to three thousand yuan.

　　Reasons

　　The consumption atmosphere is a little bit cold.

　　Last year, in an atmosphere of stimulating domestic demands, automobile consumption was encouraged. However, this year the atmosphere seems a little cold. Shi Hong said in 2009 they had expected that medium-level vehicles may suffer from large pressure in 2010. The purchase tax concessions for vehicles with 1.6-liter engine shrank and in 2009 there was consumption overdraft. Such kind of situation really exists in 2010. Mid-level vehicles were hit in a larger degree by negative impacts, which was the normal market reaction brought by policies.

　　Su Hui, an auto market expert pointed out that in 2010 the policies aimed at promoting automobile consumption were weakened such as the shrinking of purchase tax concessions. The cost of using cars is increasing as the parking fees and oil prices are becoming higher. CPI is increasing and price inflation of garlic and green beans has led to psychological pressure. In addition, a lot of consumers are looking forward to new promotions with the increasing of inventory.

　　The fluctuations of stock and real estate market

　　Wang Xin, the Sales Director of Guangzhou Honda Beijing Business Center talked about two examples that purchase of cars was affected by volatility of stock market. A consumer who had ordered Accord had to buy City instead because he suffered from loss in stock market. Another consumer who earned a lot in stock market chose Accord rather than Fit. The fluctuations of stock market indeed exert real impacts on auto market.

　　Witnessing downturns of stock and housing market, a large number of consumers are caught up in terms of capitals. Or they do not dare to use funds, resulting in the uncertainty of capital flows. Auto consumption will be surely affected.

　　Summer off-season arrived a little earlier.

　　Zhu Wenlan, the Deputy General Manager of Shanghai Volkswagen Beijing and Tianjin Distribution Center revealed that new orders and consumers declined in May. The declining of auto market was also affected by the traditional summer off-season.

　　The Beijing Youth Daily learned that in summer auto market would always become relatively plain. In 2009, with stimulus policies, seasonal cycle disappeared. Lots of dealers are not suited to the reemergence of the cycle. "Off season arrived a little earlier," a dealer said.

　　Consumer confidence index dropped.

　　The industry trend is always determined by consumer confidence. A customer said, “House is too expensive, but buying a car is no problem.” There are a great number of people who have similar potential capabilities. Shi Hong said that the majority of car owners belong to elite group. They have more knowledge and they are more receptive to advice and more likely to be affected by information. Therefore some changes in economic environment may influence consumers' confidence.

　　Outlook

　　Auto manufacturers feel tension about market in June.

　　Some regional directors of automakers said that the market performance in June was extremely important. As to the question whether we are enduring a seasonal cycle or a real downturn, sales conditions in June will offer an answer.

　　Wang Xin believed that the fluctuation in next one or two months will bring in the change of inventory. Automakers can cope with the problem in accordance with inventories, such as modifying the production volume or conducting promotions.

　　New vehicles were introduced and marketing strategies were implemented for the third quarter.

　　Auto market will enter into a rising seasonal cycle in the third quarter. Especially in August and September, auto market will embrace a booming growth. It is not too early to get preparations for the third quarter of 2010 and new models and marketing strategies will play a significant role.

　　Shi Hong said, by the end June Excelle XT sedan will make its debut, promoting the sales to a large extent. Inventory structure will be effectively adjusted to lay a foundation for future growth. In addition, Buick has arranged various marketing activities for the third quarter including concerts in order to promote the sales of new models.

　　It was reported that more than 20 new models would be introduced in June and July. Automobile manufacturers intend to attract more consumers by introducing new models in an off-season.

　　New models and market activities have to achieve consumers' satisfaction.

　　Both new models and marketing campaigns share a core idea-to make consumers satisfied. Several auto businesses did not adjust the price system blindly. They preferred to offer preferential policies for existing customers and in return those customers will act as a sales consultant to introduce new consumers. For example, Shanghai GM has offered preferential policies for the existing new Regal customers.

　　Moreover, some automakers launched preferential polices for auto loans in order to help those consumers with funding problems. Dongfeng Citroen even carried out a campaign claming that consumers will have a new Elysee by paying 16 yuan per month.

　　There is no possibility of the emergence of official price reduction.

　　Within the year of 2010 it is not possible to embrace official price reductions. No one is that stupid to promote sales by directly implementing price reductions. There are several substitutes such as introducing better models, launching personalized loan service and insurance offers. Unlike housing market, there are always a variety of marketing campaigns which is a unique feature.

　　He Xinhai said consumers' confidence was most important. When automakers cut prices blindly, consumers will hold funds rather than determine to buy a car simply because they don't know where the bottom line is. Shi Hong believed that cutting price blindly would exert negative effects on consumers' confidence in half a year. Consumers tend to buy a car when the price is higher.

　　In addition, many models are still receiving orders and auto dealers are less likely to offer substantial concessions. They can just relieve the tension between supply and demand. Wu Jiang said that there were about 600 orders in Beijing for 408 and they could deliver those vehicles within a month. Zhu Wenlan pointed out the inventory pressure was not that large and serious shortage of supply had transferred into a stabilized condition between supply and demand. (Translator: Qinghua/Hanxin)

　　See original Chinese report please clicks:

　　http://auto.sohu.com/20100526/n272349186.shtml