Cash for Used Vehicles Scheme Planned to Boost Sales

AFP/GETTY IMAGES

Wednesday – Authorities in China have announced a scheme to pay for used vehicles, which would otherwise be scrapped. Owners will be able to get a subsidy of up to $2,800 USD to pay for a new vehicle when they exchange old farm vehicles, trucks and busses. The scheme is designed to boost slumping auto sales, which declined in April and May.

In 2009 a similar subsidy scheme to exchange old cars and light trucks helped China’s auto market grow to become the largest in the world. The United States also implemented a so-called “Cash for Clunkers” scheme around the same time period. These subsidy schemes are not only designed to help boost auto sales but also to encourage sales of brand new, more fuel efficient vehicles.

Yet opinions on the new scheme and the Chinese auto industry’s general outlook are mixed, Rao Da, secretary-general of the China Passenger Car Association told AP:

“Car owners can make even more money in the second hand market. So unless they can’t sell the vehicles there, I doubt it will do much to boost sales.”

However business advisory firm AlixPartners think the recent slowdown will not plunge China’s annual auto sales figures into the negative. In a recent report they estimated the Chinese auto industry would experience up to 15% annual growth until 2016.

“The market has certainly witnessed a period of slowdown in the first few months of this year as the government phased out incentives and restrictions in new-car purchases were implemented,” said Ivo Naumann, managing director of AlixPartners and head of the firm’s Shanghai office. “And yet the executives we surveyed, from across the industry, have a very positive view on its long-term growth, saying they believe growth will average 12% to 15% from now to 2016. If not the heady heights of 2009, those are still very healthy numbers.”

The firm highlights the large growth potential the Chinese market still holds.

“The key driver for this expected growth is the increasing wealth of households, says the study. Currently, 72% of urban households in China with annual income of more than RMB 60,000 own a car, but that represents only 20% of all urban households and 10% of all households in the country, illustrating a lot of growth potential. The number of households surpassing this income threshold is expected to double in the next five years, says AlixPartners.”

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