China Car Dealers Struggle Amid Price War, Emissions Regulations

Chinese auto dealers are struggling to survive after a brutal price war disrupted plans to clear gasoline-powered vehicles before stricter emissions standards go into effect later this year. Even with sizable discounts offered by major automakers like BYD Co, Toyota Motor Corp, and Ford Motor Co, auto sales, particularly for internal combustion engine cars, have not recovered from pandemic restrictions. The first two months of 2022 saw a 20% decline in new car sales from the same period last year, with sales of gasoline-powered vehicles falling by 30%.

According to a March 23 article by the nation's Auto Dealers Chamber of Commerce, which has since been removed from its WeChat account, dealers could be left with hundreds of thousands of cars that would become non-compliant when China's emissions standards for the next phase go into effect in July. Although the price war may have increased foot traffic, the article claimed that showrooms that didn't offer discounts saw a sharp decline in sales.

Last year, when Covid lockdowns disrupted auto production and sales, dealers already had a difficult time. At one point, Shanghai went an entire month without selling a single car. According to the Chamber of Commerce, only 20% of dealers made a profit in 2017 and more than 2,000 closed their doors by 2022. The chamber did not respond to emails seeking comment on why the article was removed, and calls to its head office went unanswered. The chamber's website lists over 8,000 dealers as members as of 2019.

Old tricks are no longer effective in the same way. These temporary fixes for the market's structural problems are obviously unsustainable and won't last very long. Offering incentives and lowering prices will increase costs and reduce already dwindling profit margins. According to Anjani Trivedi, a columnist for Bloomberg Opinion, "but perhaps the painful fallout is what's needed."

The chamber demanded that the new emissions standards be postponed until January 2024 in order to give dealers more breathing room. It also urged automakers to stop making vehicles that don't meet the new regulations. The China Automobile Dealers Association, another distributor organization, also raised the red flag. Price wars have historically occurred, but this one is particularly disruptive because outside parties, like provincial governments, have joined in with subsidies to support their local automakers, it stated in an article published on Friday.

Instead, the article recommended that the various levels of government implement fiscal and financial policies that will increase overall spending and guarantee a fair and orderly auto market. According to the association, automakers must modify their conventional production models to reflect the shifting consumer preferences and provide compensation for any possible stock clearance requirements on the part of dealers.