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Jun
2015

Luxury Cars December 2013

The unexpected is always expected by the Chinese people and it’s why they are so flexible and appear to other nationalities as ‘random’ in their behaviour. In this month’s Business Review of the luxury car sector, we look at government policy decisions that affect all car buyers no matter how much they are spending.

夜里11点

11:00 PM, December 15th, at the BMW and Audi 4S stores in Tianjin

The Tianjin surprise

At 19:00 on December 15th, the Tianjin Government held a press conference to announce that it was introducing a passenger car purchase restriction policy and motor vehicle license plate driving restriction that would take effect from 00:00 on December 16th. The city became the fifth in China to introduce restrictive measures on vehicle ownership and usage after Shanghai, Beijing, Guiyang and Guangzhou.

Prior to the announcement, the Government had never publicised any information related to the policy or its introduction, and left no buffer period for consumers or retailers to utilise, the result was panic buying. An effect not heard of elsewhere in the world!

According to the news, the local government has learned from Beijing and Shanghai how to implement the policy for both restricted purchases and auction of license plates. As the specific details have yet to be published, Tianjin will suspend passenger car registration from 16th December 2013 to 15th January 2014 that will undoubtedly hit the car market seriously, no matter how much consumers want to pay.

For the lay readers of Luxury Insights China we must explain that when you buy a car in China you pay a great deal more for it than you might in Europe or the USA (see July/August issue), and then on top of this you have to buy your license plate. In cities like Shanghai, and now Tianjin, the number of license plates per month is restricted and consumers must bid in an auction for one, so there is no guarantee that even if you have the money, you will be able to drive your newly purchased vehicle!

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The history of Car restriction policies

In the early 1990s, the country’s first regulation to control the total number of passenger cars was introduced.

Shanghai the first mover.

Shanghai began to control passenger car registrations via an auction process in 1994. However, this didn’t stop the enthusiasm of Shanghai consumers to own a car, and in fact drove the prices of plates sky-high. In the first half of 2002, the average transaction price of a license plate was approximately 15,000 RMB (US $2,500), but by November 2013 when 38,220 people bid for the 8,500 license plates available, and prices reached 75,717 RMB (US $12,500) or the equivalent of small car from a domestic independent brand.

Compared to the auction system in Shanghai, Beijing created a lucky draw for license plates.

Beijing adopts a lucky draw scheme

Anyone who has visited Beijing will know of its horrendous traffic problems, and that travel to or from meetings in the city can take two to three hours depending on the time of day. On January 1st 2011, the government announced a policy whereby it would provide 240,000 available license plates each year (private license plates account for 88% of all registrations) and the draw for the lucky winners would be held on the 26th of each month. Non-Beijing citizens need to have paid 5 years’ taxes in the city before they can apply for a plate but those from Hong Kong, Macao or overseas only need have lived in Beijing for a year to do so. According to the latest information as of 26th November, in that month about 1.7 million people applied for 18,293 licenses, a ratio of 94.3 applicants for every available plate.

Guiyang

To the surprise of everyone, Guiyang, the small capital city of Guizhou province became the third city in China to limit passenger car license plates. Before doing so in 2011, there were 650,000 vehicles owned and driven by the population of 4.45 Million. The city centre is very old and the streets were not designed to handle cars, hence the adoption of the policy. Only 2,000 people are able to own a new license plate each month via a restricted process if they live in the core 9 square km zone in the city.

Guangzhou

As of 1st July 2012, Guangzhou limited registration of 120,000 car license plates per year through both a lucky draw (40%) and auction (60%) systems. Non-Guangzhounese are required to stay in in the city for 3 years before they can have a car registered there.

Rumors are that Hangzhou, Shenzhen, Chongqing, Qingdao, Wuhan and other big cities will follow and publish similar policies in the near future.

How the restrictions bite

The restriction in Tianjin may have a relatively small impact on the luxury car market. Most the consumers who are stopped by the high license plate fees are not wealthy and plan to buy cars cheaper than 300,000 RMB (US $49,500). It may make a small group of people who are willing to buy an entry-level luxury car at 300,000 to 400,000 RMB turn to a cheaper brand because their overall budget will be restricted. But for the rest of the buyers, faced with a license plate that is expensive and hard to buy, they are likely to prefer to purchase a better car than they might have initially planned because it may be their only chance of getting a car on the road. Of course, its unlikely that the restriction has any influence on the HNWIs, they have money anyway.

The data from the National Bureau of Statistics shows that there are over 11.52 Million cars in those four cities alone (excluding Guiyang).If we were to use 10% as the replacement ratio per year, this would mean an upgrade of 1.152 Million cars each year that are able to transfer their old existing plate.

It is worth noting that the recent Tianjin car restriction policy may set a trend and that more cities will follow shortly. How this will affect international car manufacturers remains to be seen.

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Store opening and activities

BMW

6 new BMW 4S dealerships opened in December, in Chengdu, Nanjing, Tongxiang in Zhejiang, Yantai in Shangdong, Yibing in Sichuan and Yancheng in Jiangsu. In addition on 7th December, a BMW LifeStyle store opened within a BMW 4S store in Kunming.
Mercedes

Mercedes opened 4 new dealerships during December, in Beijing, Shenzhen, Xian and Haikou.

Audi

A month after Audi opened its second used car dealership in Hangzhou, the third opened on 30th November. One new 4S dealership opened on 18th December in Huaihua in Hunan province.

Lamborghini

After a long planning period, Lamborghini finally opened 3 new dealerships by the end of 2013, its second in Beijing and Xian and the first exclusive dealer in Wenzhou.

Maserati

Maserati also opened three 3S dealerships in December in the tier 2 cities of Shaoxing and Jiaxing in Zhejiang and Xuzhou in Jiangsu.

Rolls-Royce

Rolls-Royce opened its 18th and 19th dealerships in Changsha and Taiyuan in the middle of December.

 


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