Rural subsidy policy seems hard to pay off

Shanghai, March 18 (Gasgoo.com)  Last weekend, China's finance ministry detailed the 5-billion-yuan ($732 million) subsidy plan for rural vehicle purchases. Under the plan, farmers who buy light trucks and minivans from March 1 to Dec 31 this year will get a 10% discount, with a subsidy ceiling of 5,000 yuan.

Now Chinese minivan makers are lifting their output to meet the possibly growing rural market demands. However, as part of China's stimulus package to boost the country's auto market, this rural subsidy policy is not very well received yet by many automakers and rural customers. The main reason is that the subsidies, as currently specified in the plan, only flow to rural buyers of light trucks and minivans.

China has about six minivan makers and some more light-truck makers, including SAIC-GM-Wuling, Changan, Changhe, Hafei, Jianghuai, Chery, and Foton. The majority of mainstream automakers in China, especially passenger car makers, are not lucky enough to benefit from the rural subsidy policy. Therefore, many automakers see this plan as "unfair play" in some sense.

And at the rural market, farmers have not responded quickly to the 10% subsidy for their buying of light trucks and minivans. One the one hand, many farmers who need these two types of vehicles have already bought them, and on the other hand, those who need these vehicles but have not bought them still cannot afford to pay the other 90% of the considerable price, because their incomes are difficult or impossible to increase amid the economic depression.

In addition, a growing number of new rich families in the countryside are interested in other vehicles as well. They would like to buy sedans, SUVs, MPVs, pickups for different purposes. If the "cars to the countryside" program should reach out to larger groups of rural residents, sub-1.3L sedans and pickups could be included in the subsidy plan to meet more vehicle needs of farmers.   

More than 2 million light trucks and minivans were sold in China last year. The subsidy policy is intended to boost their sales by 50% this year. Given the rural buying power and buyers' different needs for vehicles, the sales increase of 1 million light trucks and minivans in 2009 may be the wishful thinking of the subsidy policy makers. Plus, the 5 billion yuan is not enough to cover the vast rural market or such a high sales growth rate.

Still, following the announcement of the subsidy plan for rural vehicle purchase, China's light vehicle and minivan makers have started their promotional tours of the vast rural areas and are expanding their sales networks across the countryside. Fierce competition between these auto companies is emerging on the rural horizon.