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China's Discounted, Incentivised Car Market

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http://noir.bloomberg.com/apps/news?pid=20601109&sid=a3sjsil7ibGQ&pos=13

China Car Dealers Cut Prices as Vehicle Demand Cools (Update2)

By Bloomberg News

July 22 (Bloomberg) -- China’s appetite for cars has slowed and Zhu Dongwei, an auto salesman in the central Chinese city of Zhengzhou, is doing all he can to whet it.

Customers at Zhu’s General Motors Co. dealership get a 14 percent discount, a refund of sales tax and a chance to win a free iPod if they buy a 41,800 yuan ($6,170) Matiz compact car.

“This is our biggest promotion this year,” Zhu said. “Without discounts, many people would wait, not buy.”

Demand in the world’s largest vehicle market may drop from year-earlier levels in the second half of this year, triggering price wars as dealers compete to clear inventories, according to Credit Suisse Group AG and IHS Automotive. Wholesale passenger- car deliveries in June gained at the slowest pace in 15 months as inflation reduced buyers’ purchasing power.

“Some dealers and automakers may panic and offer the largest discounts they can,” said Yale Zhang, a Shanghai-based analyst at consultant IHS Automotive. “If prices of daily necessities keep soaring, people’s expectations of their future financial security will be undermined, reducing their desire to buy a car.”

China’s auto sales, which have increased every month since February 2009, began growing at a slower pace in April amid rising prices for consumer goods and signs of economic cooling.

Easing GDP Growth

The government also raised the sales tax on small cars to 7.5 percent this year after halving it to 5 percent in 2009. The tax cut helped last year’s vehicle sales surge 46 percent to 13.6 million, surpassing the U.S. for the first time.

Wholesale passenger-car sales in June grew 19 percent from a year earlier, the slowest pace in 15 months, as China’s inflation rate stood at 2.9 percent, the second-highest rate this year. The nation’s gross domestic product expansion eased to 10.3 percent in the second quarter from 11.9 percent in the preceding three months, the statistics bureau said on July 15.

“The uncertainty of the macro-economy will influence people’s confidence, leading to a slowdown in auto sales growth,” said Xu Minfeng, an analyst at Central China Securities in Shanghai. “The phasing out of some favorable policies for car buyers last year, such as the increased sales tax, has also contributed.”

Average prices of China’s locally made passenger cars fell by 2.08 percent in June from a year earlier, the biggest decline this year, according to the National Development and Reform Commission.

Capacity Expansion

Even as car demand may stall, automakers including GM, Volkswagen AG, Honda Motor Co. and Nissan Motor Co. are rushing to boost capacity and introduce new models as they compete for bigger market share.

Nissan, the largest Japanese carmaker in China by sales, aims to expand production capacity in the nation 68 percent to 900,000 vehicles a year by 2012 and plans further increases after that, Chief Executive Officer Carlos Ghosn said in April.

The slowdown in sales growth since April “doesn’t affect our plan,” said Sharon Shen, Nissan’s Beijing-based spokeswoman.

Shares in Dongfeng Motor Group Co., Nissan’s partner in China, have declined 11 percent this year and fell 1.2 percent to HK$9.96 in Hong Kong today. SAIC Motor Corp., China’s largest homegrown carmaker and a partner of GM and Volkswagen, has fallen 26 percent in 2010.

SAIC and GM’s minivehicle-making venture SAIC-GM-Wuling Automotive Co. said last month it plans to boost capacity by 47 percent to 1.31 million vehicles annually by 2012. “We will remain aggressive in our approach to China,” said Deng Xiaoyan, a GM spokeswoman in Shanghai.

Output Exceeds Sales

Domestic auto output exceeded sales by 1.29 million vehicles in the first half of this year, the China Automotive Technology & Research Center said on July 5. The average stockpile period, a measure of the time between car production and registration, was 55 days in June, compared with 41 days in February, the center said.

“Automakers should reduce supply rather than getting into a price war,” said Zhao Hang, president of the center.

The slowdown in demand growth has left some automakers, including BYD Co. and Anhui Jianghuai Automobile Co., lagging behind their full-year sales targets.

Warren Buffett-backed BYD, which aims to double annual sales to 800,000 vehicles, met 36 percent of its goal in the first six months. Anhui Jianghuai, based in the eastern city of Hefei, achieved 31 percent of its full-year target of 300,000 passenger cars.

BYD’s share price has declined 24 percent in Hong Kong trading this year, and the carmaker said July 14 it may delay a planned share sale in Shenzhen to seek “better pricing.”

Premiums to Discounts

While carmakers’ discounts may vary based on their profit margins, price cuts of as much as 5 percent on average are likely, IHS’s Zhang said. Imported vehicles carry higher price tags and may be subject to steeper cuts, he said.

“Automakers and dealers in China aren’t enjoying the good life like last year,” said Guo Yong, a manager at Beijing Asia Games Village Automobile Exchange, a market that includes 130 vehicle dealers. Sales outlets are offering 7 percent to 8 percent discounts on vehicles with sticker prices between 110,000 yuan and 120,000 yuan, he said.

By contrast, some customers in Beijing paid a 20,000 yuan premium to skip ahead of a waiting list for Toyota Motor Corp.’s RAV4 sport-utility vehicles in February, according to Wu Bin, a salesman with Beijing Guangshun Toyota Sales Co.

The dealership had to stop charging the premium and cut the vehicle’s price in March when sales declined amid global recalls of Toyota models, and is now offering a 5,000 yuan discount, according to Wu.

“With the discounts, sales have started to recover,” Wu said.

Hang on a minute... a falling property market and collapsing car sales... I make that Pimms o'clock. Sorry, I mean a depression recession depression recession...

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http://noir.bloomberg.com/apps/news?pid=20601109&sid=a3sjsil7ibGQ&pos=13

China Car Dealers Cut Prices as Vehicle Demand Cools (Update2)

By Bloomberg News

Hang on a minute... a falling property market and collapsing car sales... I make that Pimms o'clock. Sorry, I mean a depression recession depression recession...

Yes. Told you all months ago that China is lying about its economic posituion - growth, unemployment property bubble, internalised growth, export collapse happening again.

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http://www.nytimes.com/2010/07/22/business/global/22auto.html?ref=business

SHANGHAI — A decade ago, this city had five car dealerships selling Buicks, the top-selling General Motors brand in China. Today it has 27.

And the crowds of shoppers that fill many of them are young, ready to pay cash and not inclined to haggle over the sticker price.

As G.M. prepares a public stock offering later this year, China is emerging as a crucial piece of its appeal to potential investors — and a surprising down payment of sorts for American taxpayers, who would begin shrinking their 61 percent equity stake in the company.

In the first half of this year, G.M.’s China sales rose 48.5 percent over the same period last year, and for the first time ever, the automaker sold more vehicles in China than in the United States. Just 13 years after entering China, G.M. now says the country accounts for a quarter of its global sales — blistering growth that even G.M. did not expect this soon.

“China’s a big piece of the value of the company,” said Stephen J. Girsky, G.M.’s vice chairman for corporate strategy and business development. “And since we pull cash out of China, it helps fund investments in other parts of the company as well.”

Analysts estimate G.M. is worth $50 billion to $90 billion, with China accounting for about $15 billion of that total. The United States government converted about $43 billion of aid to G.M. into its equity stake, which is expected to be sold off over time after the company is publicly traded. A valuation above $70 billion or so would allow the government to earn a profit on its stake.

Through joint ventures with China’s S.A.I.C. Motor Corporation and other local manufacturers, G.M. is this country’s largest vehicle manufacturer, accounting for about 13 percent of the nation’s fragmented car market. Its product line aims to cover the broad spectrum of needs, like the $5,000 Wuling Sunshine, a barebones minivan wildly popular in rural areas, and the luxurious Cadillacs that can be seen in the wealthy neighborhoods of Beijing.

This was in today's NYTimes.

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Competition.

All of the major Autos are chasing China, as they see it as the only area for growth.

GM have been heavily incentivising their products in China for some time, others are following.

Variable marketing in Europe led by PSA is killing European profitability.

The US is recovering a little, mix is better, but still it's saturated and marketing costs are high

This years profit is going to depend on volume in China..

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The Chinese economy is moving so fast, they will be encouraged to scrap vehicles before they are delivered, so they can order a new one! :blink:

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Guest sillybear2

“What we offer is accepted at face value,”

Hah, the Chinese begin their long consumerist journey, how many years until they are jaded by materialism?

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“What we offer is accepted at face value,”

Hah, the Chinese begin their long consumerist journey, how many years until they are jaded by materialism?

This is the Chinese businessmen class, (ie upper middle class Chinese) and they can easily afford buying these cars hence why they are paying in cash.

The reason they are so rich is because there is so much manufacturing in China. See.. manufacturing is where the money is.. well that and resources but you need a lot more capital to get into the resources game, incidentally China are big on that too which is why a black market exists for scrap metal in China and the Chinese government turn a blind eye to companies illegally importing it (there's a cartel for that but I won't tell you which city).

Anyone right now who is not pursuing either manufacturing, resources or high paying dividend stocks in financials with good business models is going to have a bleak future unless they are in a specialized field

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Guest sillybear2

This is the Chinese businessmen class, (ie upper middle class Chinese) and they can easily afford buying these cars hence why they are paying in cash.

The reason they are so rich is because there is so much manufacturing in China. See.. manufacturing is where the money is.. well that and resources but you need a lot more capital to get into the resources game, incidentally China are big on that too which is why a black market exists for scrap metal in China and the Chinese government turn a blind eye to companies illegally importing it (there's a cartel for that but I won't tell you which city).

Indeed, but that somehow eludes our policy makers, I guess they've spent their entire careers pushing bits of paper around and producing reports, hence the concept of turning raw materials into finished goods people want and need is beyond them.

The Chinese must stand and stare in amazement when they see Western economies slit their own throats, they probably can't believe their luck.

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  • 258 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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