As government helps flagging vehicle purchases, manufacturers are warned not to be complacent
China's car sales are expected to benefit modestly from the package of stimuli the authorities announced last month, but carmakers should do their part to survive the flagging market, according to analysts and industry insiders.
The National Development and Reform Commission, with other nine ministries, announced an action plan in late January to boost car consumption, following a 2.76 percent fall last year.
The fall, which is the first since 1990, dragged down overall retail sales in the country.
"The current slowdown in auto sales was a major factor in the decline in consumption growth," said Liu Yunan, an NDRC official, at a press conference last month.
The measures include boosting sales of new energy vehicles, which grew over 60 percent to 1.26 million last year. They are expected to reach 1.6 million in 2019.
The authorities also propose subsidies on the purchase of small trucks and cars in rural areas, easing restrictions on pickups in cities and helping used car sales. Details have not been announced.
A nationwide tax cut on car purchases, a tool to boost sales, was not included in the package.
Carmakers, most of which have been affected, welcomed the move.
"We would always support any policies that would promote automotive growth," said Ford China in a statement.
Jefferies Hong Kong analyst Patrick Yuan said the stimuli, although weaker than expected, will help the market see modest sales growth this year.
He added that the measures were introduced to let the market recover more by itself.
He said there were emerging signs of an early recovery before the measures were announced: retails sales in the first three weeks of January were up 3 percent from the same period last year.
A report by Shenwan Hongyuan Securities estimates that seven million cars are sold in rural areas every year, representing 25-30 percent of the whole market.
When subsidies are implemented, it expects the growth in the rural car market to increase 4.7 percent this year, after expanding 2.6 percent in 2018.
Shi Jianhua, a deputy secretary-general of the China Association of Automobile Manufacturers, said unlike the tax cut on car purchases, this year's measures will not produce immediate results.
They are mainly designed to improve the overall market environment and should be viewed long-term, Shi added.
The China Automobile Dealers Association is a long-time champion of the role that used cars sales play in boosting the new car market.
"We now have some 200 million cars on the road. If used cars don't sell, we are not going to see rises in new cars. They are very closely related," Xiao Zhengsan, secretary-general of the association.
Despite the chill in the new car market, used car sales are growing. They are expected to see faster development with the measures in place.
Statistics show that 12.6 million used cars were sold from January to November last year, an increase of 12.84 percent year-on-year.
The CADA expected sales may have risen to around 14 million for 2018.
Analysts say that although the authorities are putting the measures in place, carmakers should not be over-reliant on them and should adapt themselves to meet market demands.
German carmaker Volkswagen plans to launch a number of new models in China, offering more choice in the competitive market.
It has also announced the launch of a budget car brand in February to penetrate smaller Chinese cities.
Volkswagen, which has been one of the most popular international carmakers in the country, saw sales in 2018 stay roughly the same as the previous year.
Cui Dongshu, secretary-general of the China Passenger Car Association, said the age of fast and assured growth is gone and those who don't respond to market changes will fail.
"Declining car sales may speed up the process of squeezing out the incompetent players and we may see some of them exit the market," said Cui.