Policies "igniting" rigid demand for automobiles

"Thanks to a package of government policies to revitalize the automobile market, the automobile market in China continued to grow rapidly in the first half of 2009, becoming a highlight in the international automobile market," said Dr. Winfried Vahland, President and CEO of Volkswagen Group (China), adding that Volkswagen Group (China) and the other two joint ventures -- Shanghai Volkswagen and FAW-Volkswagen have delivered a total of 652,200 automobiles to customers in the first half, representing a growth of 22.7 percent year on year.

Klaus Maier, President and CEO of Mercedes-Benz (China) Ltd. has felt the same growth in China's automobile market. In the first half, sales volume of Mercedes-Benz in Chinese mainland achieved six-month consecutive growth. 27,000 automobiles were sold, representing a growth of 50 percent year on year. In June alone, Mercedes-Benz sold more than 5,100 automobiles, a growth of 52 percent year on year. Maier said, "The rapid growth of 50 percent is not only a highlight in the Mercedes–Benz's global market, but also indicates that Mercedes–Benz has taken the lead in the industry and among its rivals in the luxury automobile market."

The excellent market performance of Volkswagen and Mercedes–Benz was just a fraction of the overall growth in China's automobile markets that bucked market trends in the first half of 2009. Statistics from the Association of Automobile Manufacturers of China show that China's automobile sales were 6.11 million from January to June, representing a growth of 17.69 percent year on year and surpassing the United States to become the world's largest auto market. In particular, sales of passenger cars reached 4.53 million, a growth of 25.62 percent year on year.

"Compared to nine other industries where plans for revitalization and adjustments were introduced, and to other countries where policies encouraging automobile consumption were introduced, China's automobile industry has recovered faster and shown a trend of continuous growth, thanks to rigid demands," said Xu Changming, director of the Marketing Information Division of the State Information Center, adding that when demands for new cars in a country mainly come from first-time buyers, then its demand is rigid, otherwise it is flexible. In 2008, first-time buyers accounted for 83.1 percent of all purchases in China's automobile market, compared to a merely 10 percent in Europe and the US. This is why China's automobile market is thriving amid the financial crisis.

"Strong, rigid demand is the foundation of growth in the automobile market. The introduction of automobile-related incentives for consumers is one way for China to quickly propel its way out of the shadow of the current financial crisis," said Zhang Raoda, secretary of the National Passenger Car Market Information Association, adding that the reason for the growth in the passenger car market in February of this year is clearly due to government policies. He further explained that from January to May, consumer sales of passenger vehicles with engines smaller than 1.0 liters and vehicles with 1.0 to 1.6 liter engines have increased by 46.6 percent and 52.7 percent respectively year on year. These two market segments enjoy two main preferential policies, a 50 percent discount on sales tax as well as subsidies for cars going to the countryside.

After a perfect start in the first half, the auto market has become the focus of both industry insiders and outsiders. Xu Changming pointed out that the history of the Japanese and Korean automobile markets show that a country's automobile market has two periods of rapid growth.

The first occurs when growing from 5 cars per thousand people to 20 cars per thousand, a period lasting approximately 5 years with annual sales growth averaging 30 percent. The second period occurs during a growth of 20 cars per thousand people to 100 cars per thousand people, a period lasting approximately 10 years, with annual sales growth averaging 20 percent.

Currently, this figure stands at 38 cars per thousand people and thus China is in the second period of rapid growth. "Policies to promote economic growth will continue in the second half, and the macro economy will also stabilize and recover, we expect that automobile sales for 2009 will reach 11.5 million units," said Xu.