China auto sector needs more than stimulus

Shanghai, February 25 (Gasgoo.com) "In their report on the central government's restructuring and stimulus plans for the auto industry, the media would only focus on the "stimulus" and dismiss another key word "restructuring," said Xie Lieping, an auto industry expert. The mechanisms of the auto industry and market need adjusting for them to run in more smooth order.

The remarkable sales record in January and the 2009 sales targets released by Chinese automakers have shown the power of the stimulus plans. But in the off season ahead (usually in March and April), a long-term strategy is more needed. Xie said that only the January auto sales in China, or in Beijing, bucked the downturn trend, but this growth is unlikely to continue into the coming few months, in which the sales will reach a plateau.

China's auto industry and market need restructuring. Currently, the sales of 1.6L-minus models have grown to gain larger market share since the government started the small-car sales tax cuts last month. This may not benefit the long-term development of the Chinese auto sector. The auto market not only needs the sales growth, but also needs the diversity of the consumer structure, the variety of prices and products.

In addition, the healthy development of the auto industry should be driven by a stable degree of profit-making from the sales growth. Some auto makers and dealers have tried to seek high sales at low profits, and this will harm the fair play and sustained growth of the auto market. The price war or competitive discount could not boost the sales for a long time, let alone bringing more profits.

Auto industry regulators in China have stressed that the government's stimulus policies are aimed for pushing up the nation's economic growth and meanwhile for restructuring the auto industry and market. Automakers are urged to develop and make energy-efficient, low-emission vehicle models, which will benefit more auto consumers, Chinese-brand carmakers, and our environment.

A series of auto support plans recently released by the Chinese government are expected to solve the deep problems of Chinese auto sectors. Chinese automakers, large or small, are encouraged to restructure themselves through mergers and acquisitions (M&A) and technical innovations.

The off-season can be good time for automakers to retool and upgrade their mechanisms, to improve their product line-up, to introduce technical talents, to study new marketing modes, to adjust the sales networks, and to take stock of their performance.

China's auto sector needs more than stimulus. The restructuring plan issued by the government this week may provide guidelines on how to put auto business on the fast track in the right direction.