Cash To Car Buyers Being Given By China To Prop Up Car Sale

Chinese authorities are giving out cash to consumers in the country to prop up sale of new cars in the country to try and stage a turnaround in the auto sector of the largest auto market of the world which was ravaged by the coronavirus pandemic.

In other years, more than 6 million new cars would have been sold in the market by now. However just about 3.7 million have actually been sold this year so far.

According to data released late last week by the China Association of Automobile Manufacturers (CAAM), in the first quarter of 2020, there has been a 42 per cent year on year decline in sale of new cars in China. While a massive plunge of 79 per cent in sale of new cars in February was primarily responsible for the figure, the current demand also remains weak. Just 310,000 new cars were sold in the country with a population of 1.4 billion. In March, only 1.43 million new cars were sold in China which marked a 49 per cent year on year drop.

For the Chinese economy, the auto industry plays a crucial role with more than 40 million people dependent for direct or indirect employment in the sector. About 10 per cent of the total manufacturing output of China – about $1 trillion in revenue, is generated by the sector every year.

A strong demand for be vehicles in the Chinese market is also crucial for the global auto companies. Millions of cars in China are sold by global automakers like Volkswagen and General Motors and the revenue generated from the Chinese market accounts for about 40 per cent of the global revenues for each of the companies.

With the recent opening up of economic activities in China after strict restrictions to non-essential business activities, production of cars has also started in the country. Even the city of Wuhan, the epicenter of the coronavirus pandemic and a major global auto manufacturing hub, is slowing opening up after a 76-day lockdown.

However, while production may have started, prompting customers to purchase new cars will be a difficult proposition. That is compounded by the fact that the Chinese economy was slowing down even before the virus pandemic hit the country and its economy.

In 2018, there was a 8 per cent drop in sale of total car sales in China at just a little less than 25.8 million which was preceded by a 3 per cent drop in the figure in 2018. Those were the first contraction in car sale in the country since the 1990s.

“While the supply chain disruption by coronavirus is surely a headache for auto makers, plummeting demand could be even more life-threatening after two consecutive years of sales contraction in China,” wrote Alicia García-Herrero, chief Asia Pacific economist at Natixis, in a recent research note.

The auto industry’s “primary issue” and an “urgent need” is to boost sale even as production has been started by automakers, said CAAM in a statement.

(Adapted from CNN.com)



Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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