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2017 CADA Annual Convention: China exhibiting characteristics of a mature auto market

SUZHOU, Jiangsu – China’s auto market is exhibiting characteristics of a mature automobile market, according to Shen Jinjun, president of China Automobile Dealers Association (CADA).

Shen made the comments in his opening speech at the 2017 China Automobile Dealers Industry Development Forum here on November 14, part of the 2017 China Automobile Dealers Industry Annual Convention & Expo held on November 13-15.

“China’s auto industry is entering a high quality development phase,” Shen told an audience of more than 2,000 people from the automotive distribution business including sales, aftersales and used vehicle trading. “Competition is intensifying as consumers continue to upgrade consumption habits and used vehicle transactions continue to increase to complement new vehicle sales.”

In fact, used vehicle transactions topped 10 million units through to October, growing more than 20 percent year-on-year, according to the latest data from CADA. That is more than five times the growth of new vehicle sales during the same period and total used vehicle transaction volume for 2017 is expected to top 12 million units.

The rapid increase in used vehicle transactions outpacing that of new vehicle sales is one of five major characteristics of the market in 2017, according to Shen. The other four include mixed performance in the passenger vehicle segment, rapid rise in new energy vehicle sales, surprising growth in the commercial vehicle segment and the integration of the traditional distribution industry with internet technologies and online e-commerce platforms leading to the emergence of diversified forms of business models.

“Despite challenges in the market, our dealers have experienced higher profitability growth than sales or revenue growths,” said Shen. “The auto industry is very much like that of 2012, the last time we held the annual convention in Suzhou, when growth stalled, price wars raged and OEM-dealer relations were sour, but our dealers have become more confident thanks to the transformation they have gone through.”

In the ranking of the top 100 dealership groups unveiled earlier in the year based on revenues in 2016, one had revenues topping ¥100 billion for the first time, while about 40 had revenues of more than ¥10 billion.

“Technology innovation and consumption upgrading are driving the transformation of the auto industry from every angle. Dealers must grasp these changes while remain earnest in serving the 200 million vehicle owners,” said Shen.

The legal environment of the auto market is also becoming standardized, especially in terms of anti-monopoly enforcement, according to Zhang Handong, director of the Bureau of Price Supervision and Anti-Monopoly at the National Development Reform Commission (NDRC). In fact the country will soon release the much-awaited Auto Industry Anti-Monopoly Guidelines which is currently under revision.

“Anti-monopoly enforcement in the auto industry never stops and is a constant ongoing process,” said Zhang. “The introduction of the Guidelines will improve enforcement transparency, lower compliance costs of dealers, increase sales and aftersales service efficiency and enhance consumer benefits, while ensuring scientific and effective anti-monopoly supervision.”

Auto industry has also been clamping down on quality, according to Liu Weijun, division chief of Inspection and Quarantine at the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). Since the auto industry’s “Three Guarantees” of return, repair and exchange came out in 2013, automakers have earmarked ¥39.6 billion in costs related to claims to ensure welfare of more than 60 million vehicle owners. But he warned that problems still exist such as companies not adhering to the requirements of the “Three Guarantees,” lacking the right mechanisms and systems and social cost wastes are severe.

Andrew D. Koblenz, executive vice president for legal and regulatory affairs at National Automobile Dealers Association (NADA) from the U.S., said that used vehicle sales in the U.S. are three times the size of new vehicle sales and two-thirds of the used vehicle transactions are done by dealers, where only 20 percent are done by individuals. He said that Chinese dealers must consider the used vehicle business as an additional profit source.

Wang Wei, director of the Research Institute of Market Economy at the Development Research Center of the State Council, said that younger consumers such as the “Post-80s or 90s” generation who are in the age range of 15-35 are becoming mainstream consumers. This group now accounts for 60 percent of China’s consumption and as a result purchase habits are changing from being able to own a vehicle to own a quality vehicle.

“Automobile dealers are becoming a key link for consumption transformation and they must strengthen their digital, talent, technology and capital capabilities and integration to become successful,” said Wang.

Liu Ming, deputy director of the Department of Information and Industry Development at the State Information Center, predicted that China’s passenger vehicle market will grow at about 3 percent in 2018 despite the phasing out of the purchase tax savings for 1.6L and below passenger vehicles at the end of this year. He described the market in 2017 as “low overall growth but structurally going high-end” and that in 2018 will continue the same trend.

“The negative effect of the ending of the purchase tax savings will not be as severe as the last time that happened (in 2011),” said Liu. “China’s GDP is expected to grow at about 6.5 percent in 2018 and the market will continue to be more diversified and high-end.”

Wang Hewu, a Ph.D. advisor at Tsinghua University and deputy director of the China-U.S. Clean Vehicle Alliance, said that global sales of new energy passenger vehicles will reach about 1 million units, accounting for 1 percent of total vehicle sales. From 2011 to 2016, China’s new energy vehicle parc has increased from 10,000 units to 1 million units, accounting for 50 percent of the global total. China’s NEV ownership per 1,000 people has reached 1.5 units, just 1 percent of the total vehicle ownership per 1,000 people (150 units).

In a live survey conducted at the forum, nearly two-thirds of the respondents chose 0-5 percent as their prediction for market growth in 2018, 9 percent selected below zero growth and 27 percent selected more than 5 percent.

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