A man walks past General Motors Co. (GM) Chevrolet vehicles sitting parked outside a car dealership in Shanghai. (Photographer: Qilai Shen/Bloomberg)

China’s Car Slump Has Dealers Slashing Prices, Giving Cheap Loans

(Bloomberg) -- China’s worst car-market slump in a generation is forcing manufacturers and dealers to resort to generous discounts and loan offers to lure buyers, as the slowdown hits automakers’ profits.

Incentives and reductions equivalent to more than 10 percent of the sticker price are now commonplace and interest-free loan offers abound as carmakers and dealerships struggle to bring buyers back to showrooms, especially outside China’s cities. But buyers aren’t biting, with car sales continuing to decline this year after the first annual drop in more than two decades.

China’s Car Slump Has Dealers Slashing Prices, Giving Cheap Loans

Consumers are shunning big-ticket purchases like cars as the world’s second-largest economy slows and the trade war with the U.S. weighs on stock prices and consumers’ spending power. The heavy discounting threatens to put further strain on automakers’ finances, potentially foreboding job cuts and mergers among the industry’s hundreds of manufacturers.

“2019 should be a year of the survival of the fittest and we may see more merger and reorganization cases in the auto industry," Shi Jianhua, a deputy secretary general of China Association of Automobile Manufacturers, said at a conference in January.

Read More: China Auto Boss Expects Local Electric-Car Subsidies to End

Locals Exposed

Smaller Chinese manufacturers may be more exposed than bigger global companies, which can rely on sales in other countries and have more established brand following. Customers for cheaper Chinese brands tend to be consumers who live in smaller cities and rural areas and are often considering buying their first car -- and are more easily affected by the slowing economy.

“The sales slump is adding more pressure on Chinese brands,” said Cui Dongshu, secretary general of China Passenger Car Association. “The speed of the industry reshuffle will be accelerated.”

Local companies including Chongqing Changan Automobile Co., Brilliance China Automotive Holdings Ltd. and BAIC Motor Corp. have seen their stock prices plunge by half or more in the past year as the slowdown has hit sales volumes and earnings. BAIC Motor lost 4.3 percent Monday, the biggest drop since Dec. 18.

Government Stimulus

Still, global brands are also facing headwinds. Hyundai Motor Co. and Jaguar Land Rover parent Tata Motors Ltd. slumped to quarterly losses, citing China woes. Suzuki Motor Corp. pulled out of China last year.

The government on Jan. 29 urged local authorities to roll out measures to boost vehicle sales in rural areas, an effort similar to a campaign a decade ago that helped revive demand. While local governments haven’t yet announced detailed incentive policies, automakers are moving ahead with offers of their own.

Read More: China Plan to Boost Car Sales Disappoints With Auto Stocks Down

BAIC Motor cut about $1,000 off the price of its Senova Zhidao sedan, bringing it below $11,000. Buyers can also choose a $149 downpayment or zero-percent interest for three years, the Chinese partner of Daimler AG said Feb. 26. The offers apply in the less-congested rural areas.

Volkswagen AG’s venture with China FAW Group Co. said this month that it will offer an incentive package valued as much as $1,800 for rural consumers who replace their aged Volkswagen models with new ones. Chongqing Changan said it will provide up to $3,300 of incentives for buyers of its Oushan cars.

No Traffic

Tom Feng, who has worked at a BAIC Motor dealership in the eastern province of Shandong for two years, said he and his colleagues are reaching out to potential customers in shopping malls and supermarkets, handing out flyers. They are also driving around in the models to spur interest, he said.

“There are not that many people coming in asking about the promotion yet,” Feng said. “I hope they would.”

He said now only three or four groups of buyers come in each day, compared with six to eight before the market began to decline in the middle of last year.

“There is no easy solution to revive car demand," Xu Haidong, an assistant secretary general at CAAM, said in January. “Car consumption hinges on the overall economic development.”

©2019 Bloomberg L.P.