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Car buyers China think smaller

Beijing, 260608. The government's latest move to raise gasoline and diesel prices has touched a sensitive nerve with car buyers.

Many Chinese planning to buy their first car find the 18-percent fuel increase has given them second thoughts about their purchase, which may dampen car sales.

But given the small marginal impact on users and the low market penetration of cars, industry analysts agree that the speedy growth in China's auto industry is irreversible in the long term.

And the price rise is also seen as giving a boost to smaller-engined cars which have better fuel consumption.

From last Friday, the retail price of gasoline rose by 0.8 yuan (12 US cents) per liter while that of diesel added 0.92 yuan per liter - the second price hike since last October.

"We expect volume growth of low-end private vehicle sales to slow down more than in the overall industry because fuel cost is a major consideration for individual buyers," said Jane Ye, an Asia-Pacific analyst of the auto sector at Cazenove Asia Ltd.

"We don't expect a meaningful impact on sales of Japanese brands with good fuel efficiency," she said, adding that rising fuel prices will also have far less impact on commercial vehicle sales.

A Fitch Ratings report also showed sales of sport-utility vehicles in China, especially cheaper models, may slow as the price increase will push motorists toward vehicles with better fuel consumption.

Even so, analysts fear that dearer fuel may drag down overall vehicle sales in China, the world's second-largest auto market. However, because so few Chinese have private cars, there is plenty of room for growth in the long term, they say.

By the end of last year, there were 36 million privately owned cars in China, a 20.8 percent rise since the previous year. For every 1,000 people there are 50 privately owned vehicles, far lower than the global average of 120 cars, and 750 cars in the United States market.

"In my opinion, there may be some potential car buyers discouraged by the rising gasoline prices, but speaking overall, it will have a low impact in passenger vehicle sales in the short term," said Klaus Paur, regional director of the automotive division at TNS China.

Status symbol

"The market is still driven by first-time car buyers, and for them, the purchase of a car is a means of demonstrating economic success. People won't just refrain from a purchase because of the current increase of gasoline prices. Even at this level, the price is still low compared to many other markets," he added.

Zhang Xin, an analyst from Guotai Jun'an Securities Co Ltd, agreed. "We do not see a major impact because the slight 3 to 5 yuan additional daily cost is acceptable to most consumers. The rising fuel prices could be partly offset by declining car prices.

"Since there is still room for further price increases, the accumulated price hike will scare people away or make them delay their purchase," he warned.

TNS's Klaus concurred. "If there are repetitive and substantial increases of gasoline prices, it can impact new car sales at a certain point. This may benefit the used car market, as people may consider buying a cheaper used car then," he added.

Car makers are keeping a cool head about the latest fuel increase, partly because they had already prepared for it as the price of oil has risen.

"We have been looking at the possible price increase since last year," said a public relations officer with Chang'an Ford Mazda.

"We have adjusted our product line-up and are on track to launch a competitive small-engine powered vehicle late this year."

Gong Guangjun, communication manager at Shanghai GM, also shrugged off the possibility of a sales slump.

"If the price keeps going up, auto buyers will pay more attention to more fuel-efficient models and we need to keep up with the demand," he said.

Shanghai GM earlier said that sales of its small-engined Chevrolet models will account for 60 percent of its total.

The Chinese venture of General Motors Corp launched a green-energy program in January this year, pledging to introduce better fuel economy and low-emission engine technologies. And Toyota Motor Corp has launched two compact car models this year.

Source: Shanghai Daily.