Car Business is Booming . . . Somewhere

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New car sales and new car financing are all the rage in Chengdu

Chengdu: famous for giant pandas, spicy food, and now . . . rocketing car sales

Chengdu, the capital city of Sichuan province, is an important economic center and communication hub of Southwestern China. Chengdu has a total population of around 11 million, and a broad industrial base of light and heavy manufacturing, aluminum smelting, chemicals, and textiles, including the traditional manufacture of silk brocade and satin.

Also to its credit, Chengdu was the birthplace of the first widely used paper money, and was named in the 2007 Public Appraisal for Best Chinese Cities as one of the top ten cities for investment. But what sets the place apart right now is that business is booming. By booming, I mean that inventories are running out, and by inventories I mean, of all things, new-car inventories.

Trading bicycles for fast cars and fast auto loans

In Chengdu and similar rural areas, supercharged economic growth has propelled China to the forefront of the world’s automobile market and provided a lifeline for major automakers as sales plummeted in the U.S. and elsewhere around the world. Spurred on by government subsidies, tax incentives, and rapidly increasing consumer-spending power, growing segments of China’s rural population are putting away bicycles and scooters and shopping for their first vehicles.

Automobile sales in Beijing and other major cities are robust, but the most notable growth has been in lower-tier cities such as Chengdu. According to a recent MSNBC.com article, car sales in Chengdu are exploding and customers must wait several weeks to buy some of the most popular models. In Chengdu, auto sales increased by nearly 60 percent from September 2008 to September 2009.

More purchasing power, more auto loan payments

Despite the growing trend, car ownership in China is only a tenth of that in the U.S. – just 40 car owners per 1,000 people — and Chinese car dealers are optimistic about the future. As Chengdu minivan salesman Zhu Yi told MSNBC.com, “Customers are buying because, quite simply, they need a car, their incomes are rising, and they now have the kind of purchasing power they need to buy them.”

MSNBC.com also interviewed Chen Lin, a BYD saleswoman in Sichuan province, who explained that car buyers are quickly becoming more sophisticated, discerning, and demanding. “Before,” Lin says, “it was a seller’s market, and people would just buy whatever was available, but now they have all sorts of requirements.” Ninety percent of Lin’s customers are first-time car buyers, and most choose the BYD’s compact sedan, the F3. “People in Sichuan are very practical,” Lin says. “They are focused on value for money, not prestige. So [BYD] cars seem to suit the local market.” On the other hand, a growing numbers of Lin’s customers already own cars and are trading up to BYD’s midsize sedan, the F6.

The future: low car prices and cheap car loans

For now, sales are booming in rural China, but no market, however strong and however boosted by government intervention, can remain immune to market forces forever. Naturally, there are those who believe that the glory days will over sooner rather than later. Despite skyrocketing demand, as of November, 2009, overall vehicle production in China had outstripped sales, and the naysayers expect profits to fall as car inventories rise and supply catches up to demand. As the Chinese auto market matures, so the argument goes, automakers will encounter the same forces faced by their American and European counterparts: excess production capacity and mounting pressure to lower prices.
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