Once-hot car market sputters in China’s smaller cities
Slowing economy, tougher credit terms sap consumer confidence
When Cao Jun, 40, an engineer from Pingdingshan, Central China’s Henan Province, takes his old gray MG 3 car to be serviced, he always takes the time to pop into the Nissan and Honda dealerships next door.
But the Civic and Sylphy sedans in the showrooms are just eye candy. Cao wants to upgrade his car, but he’s facing a steep loan repayment on his apartment, medical bills for his wife and a tough local economy in his onceprosperous coal town.
Cao is far from alone. China’s car market, the world’s largest, is on the brink of its first sales contraction in almost three decades, according to industry figures, a signal of broader economic strains.
The slowdown – aggravated by a protracted trade war with the US – is being most sharply felt in smaller, provincial cities like Pingdingshan, the engines of growth for Chinese consumption of cars and other consumer goods.
China has long hoped to spur consumption in these provincial cities as a way of diversifying an economy long reliant on manufacturing. But a slump in consumption spending is already being seen in things like cinema ticket sales, online shopping and smartphone purchases.
As he drove his MG through the outskirts of the city, Cao said capacity cuts at his main employer – State-owned coal and chemicals conglomerate Pingmei Shenma Group – meant his income this year had dropped sharply.
He has taken up driving part-time for the ride-hailing giant Didi Chuxing to make ends meet.
On a salary of about 6,000 yuan ($864.4) a month, Cao said he puts at least 1,000 yuan toward paying off his mortgage, 400 yuan on medical bills for his wife and another large chunk on his two daughters’ education.
“I want to drive a better car, but my situation won’t allow it,” he said.
He added that the family had also cut back on luxuries like long-distance travel and fancy restaurants.
Cutbacks on car purchases by Cao and others like him in China’s smaller cities are hitting local car dealers and global automotive makers.
“The main slow- ing markets now are those fourth- and fifth-tier cities,” said Xu Haidong, assistant secretary general at the China Association of Automobile Manufacturers, referring to smaller provincial urban centers.
“These were the cities leading China’s auto sales growth in the past few years,” Xu noted.
Just not working
Consumers and car dealers in Pingdingshan all painted a similar picture. The city, 150 kilometers south of the provincial capital Zhengzhou, went through boom years from the 1990s, buoyed by a flourishing coal industry.
But amid a nationwide shift to cut reliance on polluting industries and a sharp shift away from coal, the city has suffered. Pingmei Shenma Group, one of the area’s biggest employers, has cut coal capacity and seen profits fall – creating a ripple effect through the local economy.
The group, like many State-owned enterprises in China, reaches far into the community. It operates hospitals and schools, and provides pensions, subsidized housing for workers, water, heating and power.
During the boom years, a family car was a symbol of status and success in the city, driving growth faster than the national average. That has now changed.
“The situation here is really bad. We sold 40 percent fewer cars in October than September,” said Zheng Shuke, a manager at an SAIC-VW dealership outside Pingdingshan. “This is very unusual in the six years I’ve been an auto dealer.
“I think the biggest reason is that fewer and fewer people have enough money to buy cars,” he added. “Our economy used to rely on natural resources. However, now due to capacity cuts, fewer people can get the iron rice bowl,” a reference to State-owned companies that have cut cradle-to-grave welfare support that he said had underpinned spending confidence.
Reuters spoke with 20 consumers, car dealers like Zheng, auto finance executives and government officials, mostly in and around Pingdingshan, who said the car market in the Henan Province city had seen a sharp slump this year as consumers tightened their belts.
Henan is one of China’s biggest provinces by auto sales, with more than 1 million passenger cars sold this year. But growth has stalled sharply, according to data from local consultancy Daas-Auto.
Henan auto sales dropped 18 percent in October after a 25 percent drop the month before, outstripping a fall in sales nationwide of almost 12 percent in October, the fourth straight month of declines.
In response, car dealers in Pingdingshan have cut prices to lure buyers, according to dealers and ads circulated on local social media.
“We’re offering discounts, but these just don’t seem to be working,” said Zheng.
Inventory build-up
Across town at a 10-year-old dealership for GM-linked Wuling-Baojun cars, manager Jiang Long said customers had dwindled this year, especially since June.
In front of the store, 100 new cars waited to be sold, but customers were in short supply. Jiang said sales were down 40 to 60 percent from last year.
“This is just part of our inventory – we have more in other places,” said Jiang. “We make many calls to old customers... but they just don’t seem enthusiastic this year.”
The top-selling cars in the area are mostly basic models, industry figures show, a trend mirrored in other provincial cities and rural areas.
In Pingdingshan, the top sellers are the compact multipurpose vehicle Wuling Hongguang, the seven-seat people carrier Baojun 730, Great Wall Motor Co’s Haval H6, Volkswagen’s Lavida and GM’s Buick Excelle.
Outside the city in nearby Lushan county, another Wuling-Baojun dealer, Si Pengyuan, said local families used to take pride in having the best car, but they have pulled back, cutting his sales in half compared with 2017.
“Rural people like to compete. When a family buys a car, the neighbors will come and buy one too,” he said. “But this year people just aren’t coming. Families who have had cars for years aren’t replacing them.”
Credit crunch
Pingdingshan’s downturn has worried businesses and the local government, which said that young people have less buying power or are moving away entirely.
The slowing economy has sapped consumer confidence even as access to credit has dwindled amid a crackdown on risky lending and high levels of debt. Easy credit previously spurred car purchases, some dealers said.
Zhang Yinlong, a local manager at an auto finance company, said at a large secondhand car market near the city that it was a “bad time” to be in the industry. “I don’t see many customers buying cars these past few months.”
Ruan Pengfei, 33, who owns a children’s clothes shop, is one feeling the pinch. A car enthusiast with two children, he bought a new Buick Excelle GT for 110,000 yuan less than a year ago and loves to drive it to work.
But with sales at his shop slumping, he’s now reluctantly trying to sell the car for 85,000 yuan via an online platform and reverting to his older Honda Fit. He said he’s struggling to sell the Buick – with few people willing to buy even at a discount.
“My bottom price for this car is 80,000 yuan, but people who came all complained about the price,” he said.