Chery shuts once-top Beijing outlet

Once popular domestic brands are pulling back from big cities that have plate limitations and strict emission controls. Photos provided to China Daily

New car limits and rising consumer expectations put brakes on sales

Chery's first dealership in Beijing and once its top-selling outlet nationally has closed in the capital city's famous Yayuncun automobile market.

It was the first Chery dealership to reach landmark annual sales of 100 cars - then later 1,000 vehicles - in the early days of China's nascent auto market.

Yet the glory times for the Zhongruichen dealership are over. Construction workers are now renovating the former outlet to sell imported pickups.

Yan Jinghui, vice-general manager of the Yayuncun market, told China Business News that the dealership closed due to Chery's lack of popular models and stricter emission standards in Beijing adopted last year.

It is also a reflection of declining sales by domestic brands after Beijing implemented its lottery system to limit new car purchases, he said.

"Prior to that, sales of domestic brands accounted for about 15 percent of the total in Yayuncun market," he said.

"Now the proportion is between 7 and 8 percent."

According to statistics provided by the Yayuncun market, 42,100 new cars were sold in Beijing in May, a 8.7 percent decrease from a year earlier and down 12.8 percent from the previous month.

Some domestic car brand dealers have also had a hard time in Shanghai and Guangzhou due to limits on car license registration and higher consumer expectations.

Guangzhou began to limit car purchases in July 2012. Buyers in the city are now inclined to choose more expensive vehicles, a trend hurting low-end domestic brands.

According to media reports, domestic brands including Lifan and Chang'an pulled out of Race Course Auto Mall in downtown Guangzhou due to poor sales and high rents.

Blind expansion in big cities also led to shuttering of dealerships.

Shenzhen-based carmaker BYD had 26 outlets in Shanghai at their peak in 2009 and 2010, a number close to joint venture giants Shanghai GM and Shanghai Volkswagen based in the city.

The strategy helped BYD when the market was surging, but as it cooled many of BYD dealers struggled to survive.

Today the carmaker has 14 dealerships left in Shanghai, said one of its dealers in the city.

A sales chief at a domestic carmaker told China Business News that first-tier cities had big markets and status that help improve a brand image, so Chinese brands felt they must have a presence. But high rents and other costs made it very difficult for them to make a profit.

"Carmakers should have a clear understanding of the market in big cities instead of rushing in for expansion," the executive said.

When the close of Chery's dealership became a hot topic in the media, a spokesman for Chery told the Beijing Morning Post that it is a "proactive adjustment" of the company's sales network.

Chery still has 13 stores in Beijing, which is a "more reasonable layout", he said.

Luo Lei, deputy secretary-general of the China Automobile Dealers Association, said the closure is "very normal".

Sino-foreign joint ventures Guangqi Honda and Chang'an Ford have also closed dealerships in Beijing, he said.

Yet Luo noted that domestic car sales in Beijing did fall significantly in the wake of limits on car purchases. He added that "a clear consumption ladder" has taken shape.

It is easier for domestic brands to sell their low-priced vehicles in third and fourth tier markets, he said.

Statistics from China Association of Automobile Manufacturers show that domestic carmakers sold 580,000 passenger vehicles in May, 36.5 percent of the total in the country.

The market share for domestic passenger vehicles has declined for nine consecutive months since September last year, ending the period 2.92 percentage points lower than the same period last year.