Car Makers Shrug Off New China Sale Restrictions

 

General Motors Co

(Reuters)

China plans to restrict vehicle sales in eight more cities to curb traffic congestion and pollution, but car manufacturers are not worried, since they expect organic growth in the world's biggest auto market to outweigh any restrictions.

And, environmentalists say, any such measures are unlikely to make much of a dent in air pollution.
New car sales are already restricted in four Chinese cities - Beijing, Shanghai, Guangzhou and Guiyang - by limiting the number of license plates and selling them to consumers through auctions and lotteris.

Last week, the China Association of Automobile Manufacturers said eight more cities, such as Chengdu, Chongqing and Wuhan, might soon join Beijing and Shanghai in restricting new car purchases. Government officials have still not spelled out the policy.
Shi Jianhua, the auto association's deputy secretary general, warned that such restrictions, if implemented, could cut sales by 400,000 vehicles, equivalent to 2 percent of domestic sales in 2012.

Industry insiders and experts say the additional restrictions, also likely to be implemented by limiting license plates, will not depress overall sales in China, reports Reuters.

"We expect licensing restrictions to have limited impact on new car sales," Bob Socia, head of China operations for General Motors Co.(GM.N), said in an e-mailed statement to Reuters, referring to such fears.

Experts say any dent the curbs are likely to deal on sales would be more than made up by growth elsewhere in China's vast market, as wealth spreads to smaller, so-called lower-tier cities.

Those cities are smaller compared to Beijing, which has 20 million people, but are still populous by standards in Europe and North America. For example, Wuxi, just west of Shanghai, has a population of around five million people.

In places like Beijing and Shanghai, GM's Socia said new car sales are going to become increasingly less important, as the market begin to mature. More important will likely be replacement sales by consumers buying new cars using existing license plates, he said.
"If all 25 cities with severe traffic situations in China were all to implement restrictions in 2015, we estimate that the impact to GM car sales would only be about 2-3 percent," Socia said.

SMALLER CITIES
According to a report published last week by marketing research firm Nielsen, nearly 70 percent of China's prospective automobile buyers in the next 12 months are likely to come from Tier 3 and Tier 4 cities, which are home to roughly half of China's total number of car buyers today.

"The major demand for passenger cars is transferring from coastal areas to central and western China and to lower-tier cities," the report said.

Nielsen said Tier-1 cities are Beijing, Shanghai, Guangzhou and Chengdu and defines Tier-2 cities as provincial capitals, as well as economically developed cities including Qingdao, Dalian and Shenzhen.

It defines Tier-3 cities as "prefectural level" cities and Tier-4 cities as "country-level" cities.
Three of the four cities where restrictions are already in place are Tier 1 cities, while the new restrictions will mostly be in Tier-2 cities.
Carmakers, from GM to Volkswagen AG(VOWG_p.DE) to Toyota Motor Corp.(7203.T), as well as indigenous Chinese auto makers, are all shifting their attention to lower-tier cities.

"New customers will come from (lower-tier) cities, and we see great potential there," Christoph Ludewig, spokesman for Volkswagen Group China, said. "Main growth will come from (that) area."

Ford Motor Co.(F.N) , for instance, is increasing the number of dealers in China to more than 700 from about 500 stores it operates today. "The vast majority of (those) new dealers will be in those cities," Trevor Hale, a Shanghai-based company spokesman, said referring to lower-tier cities, which he said are likely to become the engine of growth in China's auto sector for the rest of the current decade.
And the restrictive auto purchase policies may end up being as ineffective in solving air quality and congestion problems as they are in stemming overall sales.

One reason is passenger car emissions, sizable as they might be, are a much smaller contributor to harmful substances in the air, compared with heavy commercial trucks, especially diesel-fueled heavy ones.

Moreover, according to a recent report by the China Institute of Public and Environmental Affairs, a main source of air pollution in most Chinese cities is industrial production, rather than vehicle emissions.
"In the long run, the real solution (to pollution from automobiles) should be to improve the qualities of engines and petroleum, and establish higher standards for vehicle emissions," said Pan Xiaochuan, deputy head of the School of Public and Environmental Health at the Peking University.

Ma Jun, director of the Institute of Public and Environmental Affairs, said that 70-80 percent of China's air pollution comes from coal consumption and factory emissions, so the curbs won't help reduce pollution unless joined by other measures.