Policy Withdrawal May Have Bad Impact

Chi Yifeng: Withdrawal of Preferential Policies May Cause Negative Impacts

Recently, sources from Department of Industry of National Development and Reform Commission pointed out clearly that the preferential policies for purchase of cars would expire in the year of 2011. Will this news propel consumers to buy vehicles by the end of 2010? What will automobile manufacturers do in order to deal with the expiration of preferential policies? During the past two years, what kind of role did the preferential policies play to boost China's auto market? When should the preferential policies expire? Regarding the impact brought by the expiration of the preferential policies, what about the growth of China's auto market next year? As to these questions, Sohu Auto had an exclusive interview with Chi Yifeng, the General Manager of Beijing Asian Games Village Automobile Exchange Market.

In 2010, the situation in Beijing Asian Games Village auto market is quite different. There is not a price war.

Chi Yifeng said that the situation in Asian Games Village auto market is quite different compared with previous years. In previous years, automobile dealerships would launch promotion activities. However, currently major automakers keep a stable price. Some independent brands and some models whose sales are not satisfactory have introduced promotion plans. Moreover, consumers have to pay higher extra fees is they want to buy some popular models such as Passat. The inventory is not enough.

Chi Yifeng also analyzed this phenomenon. He told Sohu Auto that automobile manufacturers and dealerships had already completed the sales tasks. They are not interested in chasing for higher sales by the end of this year. After completing the basic task, dealerships will receive the fixed rebates from automakers. For dealerships, it is almost impossible to receive higher rebates. Therefore, it is not urgent to promote sales. Furthermore, dealerships can deposit some sources of consumers for next year. If dealerships finish the assigned tasks, automakers will raise the quota. Therefore, at the end of this year, there is not a price war.

It is not an appropriate time for the preferential policies to expire. The growth of domestic market is about 10% next year.

When talking about the effects which the withdrawal of preferential policies exerted on China's auto market, Chi Yifeng cited some cases in the United States and Japan. He said: “We have also studied some comparative cases. The United States and Japan once issued some incentive policies. When the policies were withdrawn, their auto markets were faced with a significant decline.”

The purchasing power in China is relatively weaker. Therefore, the auto market will fall sharply. However, the withdrawal of preferential policies will inhibit the purchase of vehicles for the people who have just passed the threshold of automobile consumption. Their consumption may be curbed.

The withdrawal of purchase tax concessions may exert negative impacts on the development of small-displacement vehicles. With the help of incentive policies, China's small-displacement auto market has formed a pyramid structure. In recent years, the development of small-displacement cars is quite satisfactory. If the purchase tax concessions are withdrawn, this change will surely exert negative impacts on auto market. Chi Yifeng said that since the second half of 2010, China's luxury vehicles have embraced booming sales. Based on the situation in Beijing Asian Games Village Automobile Exchange Market, some high-end models are quite popular. Though some dealerships ask for extra fees, consumers' demands are still surging. In the year of 2011, the trend will continue. Some potential consumers who are willing to buy cars may consider larger-displacement vehicles.

Chi Yifeng forecasted that the 2.5% purchase tax concessions contributed to 10% of market growth in 2010. China will withdraw the policy next year and the orientation is not positive. “Recently I also attended some seminars. The basic conclusion is that the market growth in 2011 may not reach the same level as 2010. The growth rate is about 10%,” Chi Yifeng said. (Translator: Qinghua/Hanxin)

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