Policy Subsidy Doesn't Fix the Urgent Need for a Rational Return to the Auto Industry

Although the first half of the auto market has not yet been finalized, everyone is well aware that in 2012 the first half of this year will be "failed." In the first half of the year, the overall auto market target reached only about 40%. Under the circumstances that the auto market has clearly entered the downtrend channel, discussions on whether to intervene in policies to rescue the market are heating up again.

Since 2010, the state has successively introduced auto market incentives such as purchase tax subsidies and subsidies for small-displacement energy-saving vehicles, which have yielded significant results. In May, the executive meeting of the State Council decided to arrange for 6 billion yuan to support the promotion of 1.6-liter or lower displacement energy-saving vehicles, which is considered to be a continuation of the special subsidy funds of 120 billion yuan in 2010. Local governments also introduced a certain degree of preferential policies to the auto market. Obviously, from the policy perspective, it is still hoped that the important pillar of the automobile industry will continue to grow.

However, from the perspective of the market itself, the rapid expansion of the automobile industry has shown signs of overdraft.

Although the country has set a higher threshold for new production capacity for automakers, it does not hinder all kinds of “curve expansion” methods. Behind the prosperity brought about by the new brand and new production capacity is the ever-increasing inventory pressure at the dealer level. Since the beginning of the second quarter, popular brands, including the VW, which once had very low inventories, have already begun to press warehouses, and other brands have shown signs of the 2008 round of automobile market crisis.

The increase in inventory pressure means that the bottom line of the price has been repeatedly broken, and the profit from selling cars is already very thin, and the continuous expansion of the manufacturers allows profits to continue to be divided. Dealers do not make money selling cars, in order to maintain the operation of only mortgage loans, although the central bank cut the deposit and loan rates in the near future, but for dealers is just a glass of water. The new car that was mortgaged was sold by the dealer at a price that was almost at a loss, and the more it sold, the more the loss, the capital chain entered a vicious circle. Especially for some new stores, the cost of building stores has not yet been recovered, profitability is poor, and survival is worrying.

Moreover, unlike the background of the previous round of policies that pulled out the auto market, this time the issues involved are broader. The market share of self-owned brands has declined rapidly and there is no hope for recovery; joint venture brands have experienced incremental bottlenecks and sales targets have had to be adjusted; the growth rate of luxury brands that have been making strides has been deteriorating, and the price war has become a market adjustment. The determinants of share have caused a significant loss to the terminal.

Under such circumstances, simple "rescue" is not the right choice, but it should be an all-environmental reshaping and correct guidance. A simple purchase tax subsidy or energy saving subsidy that can be achieved will not solve the fundamental contradiction. It is necessary to use smarter and more flexible means to create a reasonable and favorable development environment for the auto market in all aspects, so that the auto market can fully adjust itself to the state of China's current national conditions in accordance with the laws of the market.

We have indeed begun to see some encouraging signs. For example, the relevant authorities in the country have started issuing more and more auto finance company licenses. They have given green light to flexible forms of sales such as loan purchases and financial leasing; for example, they are beginning to realize the purely electric strategy. The over-optimism has begun to include transitional technologies such as hybrids in the taxation list for passenger and boat taxes; dealers have begun to explore diversified profit models and started adapting to selling cars, making profits, and providing services to earn a living...

The slowdown in the auto market is not a 100% negative matter. The problems that have been masked by high-speed growth in the past can be gradually exposed. Market-oriented measures and a favorable policy environment can help the auto market mature. "Saving" cannot fundamentally change the status quo of manufacturers, distributors, and other components of the entire industrial chain, and more should be guided by its health and development by law.