By Tong Na

On July 1, Guangzhou became the fourth city in China to restrict automobile purchase (registration), after Shanghai, Beijing, and Guiyang. On the evening of June 30, the Municipal Government of Guangzhou held an urgent press conference, announcing that a transport policy that controls the volume cap of medium and small passenger cars in Guangzhou would be in effect on July 1, which means that starting July 1 quota must be applied for before a car can be purchased in Guangzhou. According to this restriction policy, within a trial period of one year, the increment cap of passenger cars in Guangzhou is restricted to 120,000 units, with 10,000 units for each month.

As we can see, automobile sales in Guangzhou amounted to 330,000 units in 2011. The quota of 10,000 units per month would mean that sales of new car in the city would be cut by more than a half in the coming year. As for the other three cities with similar policy, Shanghai issued 8,000 to 9,000 registration licenses every month by means of auctioning car license plates. Currently, the price of a license plate is more than RMB 60,000 Yuan in Shanghai; Beijing implemented the registration lottery, issuing 20,000 licenses every month, about 17,000 of them going to private car owners; Guiyang issued 2,000 to 3,000 licenses of specific number sequence every month as its way of restricting registration.

Whatever ways they have adopted to restrict registration, these cities have one common goal: easing traffic congestion. With the rapid development of the auto market in recent years, traffic congestion and air pollution from car exhaust are becoming significant hindrances to urban development. Traffic jam is a common problem in major metropolises around the globe. In China, this problem is showing signs of spreading to second-tier cities. In terms of effects, "purchase restriction" means curbing car consumption, whereas Beijing's strictly implemented "traffic restriction" according to car's tail number represents mandatory restriction in car usage; a series of endeavors also prove that the dual measures of purchase restriction and traffic restriction can reduce the level of traffic jams to certain extent. However, judging from mature practice in foreign countries, "restriction" is not as effective as "unclogging". In China, the cause of urban traffic congestion is not merely the volume of car ownership. Immature public transport operation system, none-forward-looking and unscientific roads design, and poor driving skills and road safety awareness of the drivers are all causes of congestions in cities. Therefore, license restriction can only keep the slowing down of automotive vehicles increment to certain extent and buy some time for the improvement of roads network and traffic administration measures, but it is nothing but the first step taken by local government towards urban treatment.

Although instant results can't be achieved in easing traffic congestion, the restriction does increase the uncertainties in the future development of China's auto market. For the Guangzhou market alone, the kick-off of the policy requires a period of time. July will witness a short-term dormant time for Guangzhou's auto market: sales of new cars would suffer great loss, while car renewal needs of car owners would also be interrupted. Although the regional market of Guangzhou would hardly influence the overall pattern of the development of the whole auto industry, the restriction policy itself and the signals it sends off will have continuous influences on the industry and enterprises.

Firstly, Guangzhou will not be the last city to implement caps control and license restriction policy. Earlier, Chengdu, Shenzhen, Hangzhou and other cities have discussed the feasibility of such policy; the purchase restriction policy can easily produce demonstration effects among large cities, and once purchase restriction is implemented, it would not be lifted easily. To achieve sustainable development, China's car market needs to pay more attention to the diminishing consumption demands of the consumers.

Secondly, due to the unexpectedness of the purchase restriction policy, consumers in other cities may go into a rush to buy cars after Guangzhou's license restriction. Judging from the current conditions, such unstable growth will somewhat affect the development quality of China's auto industry. 

Thirdly, in the three years since the promulgation of the Readjustment and Reinvigoration Plan of the Automobile Industry in 2009, the auto market has experienced encouraging and incentive policies and the fading out of such policies. Now, the license restriction policy is a clear signal of tightening up. The swift readjustment of industrial polices influences the development expectation of the market itself; after ten years of golden development, China's car market, which was in the process of shifting from policy-guided development to internal generation development, is once again set back by policy.

Fourthly and most importantly, with the limited monthly auto purchase quota, the market is being divided by whole-vehicle enterprises proportionally. The consumer group that are most affected are the first time buyers, followed by buyers who already owned one or more cars. Buyers who are replacing their cars are not affected. Car models of China's domestic brands have low price and high performance-cost ratio. They constitute a big proportion of first-time buyers' purchase, and therefore, they are greatly influenced by the restriction. Judging from the existence of auto dealers of domestic brands since Beijing's registration restriction policy, such concerns are not unfounded.

Anyway, a new round of adjustment of the auto market is unfolding. For manufacturers, actively adapting to the environment and accelerating exploration in the markets of second- and third-tier cities is the only possible way to maintain continuous growth; for China's domestic auto enterprises, they should hurry up to change direction, make extensive adjustment, operate steadily in the second- and third-tier cities where their networks give them preemptive advantages, and lay a foundation for their future development; meanwhile, export should be enhanced, so as to cope with short-term fluctuation in the domestic market. In the meantime, it should be noticed that whole-vehicle sales and after-sale service will undoubtedly be separated in the future. Change of dealer's business models will be a general trend in the future. The time of gaining profit and development opportunities by merely selling new vehicles is gone. The after-sales market will become a new engine that drives the development of China's auto industry.