Vehicle sales up for 6th month

Sales of passenger vehicles in China increased for the sixth month running in July.

Last month saw the sale of 1,038,808 cars, sports-utility vehicles, multi-purpose vehicles and minivans in the country, an 8 percent rise from the same period of 2011, the China Passenger Car Association said on Wednesday.

Since July last year, the passenger vehicle industry in China has had more than 1 million sales a month.

Moreover, the 8,047,925 vehicles sold in the first seven months of 2012, up 5.8 percent year-on-year, has helped to revive the industry.

"Although recent limits on vehicle purchases in Guangzhou have affected sales to a certain extent, the market has been on a trend of improvement in the hot summer months," said Rao Da, secretary-general of the association.

He said automakers have high hopes of seeing the market for passenger vehicles further recover. As a result, dealers, whose inventories hit record levels at the end of July, have come under pressure to make more sales.

"These inventory pressures will ease in August as automakers slow down their production amid the hot weather," Rao said. "And the enthusiasm for buying vehicles that is often seen at the end of August, before the new school semester starts on September 1, will further support the market this month."

He said the possibility that fuel prices will increase this month isn't likely to have a serious effect on vehicle purchases.

But Cui Dongshu, deputy secretary-general of the association, noted that Xi'an, capital of Shaanxi province, is considering limiting the number of vehicles residents can buy. Such a policy, he said, could depress dealers' sales.

Xi'an, among the places in China where vehicle sales are increasing the fastest, is likely to become the fifth Chinese city to limit car purchases by restricting the number of vehicles that can be officially registered.

If Xi'an adopts such a restriction, it will be following in the footsteps of Beijing, Shanghai, Guiyang and Guangzhou.

"If Xi'an adopted similar policies, it will inspire more second-tier cities to follow suit," Cui said. "That's bad news for automakers, which are shifting their expansion plans from first-tier cities to more second- and third-tier cities. Chinese brands will face more difficulties in their home market."

Rao said Chinese automakers should respond to the restrictions by becoming stronger competitors. He said the Chinese government is unlikely to use stimulus policies this year to boost vehicle sales.

"Fears of heavy traffic congestion in many Chinese cities will deter any government plans to subsidize vehicle purchases in rural regions," Rao said, explaining that the main reason farmers buy minivans is to travel to medium-sized and small cities.

Moreover, he said: "China's greater expenditures on people's livelihoods have more than doubled the rate of increase of the country's financial revenue in recent years. This year's financial deficit of 900 billion yuan will make it almost impossible for the automobile market to benefit from financial subsidies before the end of the year".

At the same time, he noted that China has decided to cancel road tolls during four national holidays. That policy, he said, is likely to stimulate vehicle purchases before the approaching National Day holiday, which falls on Oct 1.

Last week, the State Council agreed to allow vehicles to travel the country's roads for free on 20 days during the national holidays. The decision was meant to ease traffic congestions during peak travel times.

"It will not only solve China's worst public transport problems seen during holidays, but also give shoppers another reason to buy vehicles and travel in private cars," said Rao.