Demand for cars skyrockets in rural markets

Chengdu: Minivan salesman Zhu Yi has a problem that most auto dealers elsewhere would happily swap for their own he doesn't have enough vehicles to satisfy customer demand.

"Sales are exploding," says Zhu, a 32-year-old manager at a General Motors Co joint venture dealership in Chengdu, pointing to charts on his laptop that vividly plot the steep incline.

Car buyers in Chengdu, a grimy city in southwestern China's Sichuan province best known for its giant pandas and spicy food, face waits of up to several weeks for some popular models, he says.

"We simply don't have the cars people want. Sales could be climbing even faster."

As growing numbers of Chinese shop for their first vehicles, or trade up for newer models, sales in China's immense hinterland are booming, encouraged by tax cuts, government subsidies and growing consumer spending power.

In regions striving to catch up with relatively well-off coastal cities, families and small businesses are gladly swapping scooters and bicycles for the comfort and convenience of the automobile.

The supercharged growth has propelled China ahead of the United States as the world's biggest auto market and provided a lifeline for automakers like General Motors and Toyota Motor Corp as sales crashed in other markets.

The government's role in spurring the market has been crucial but China's still low level of car ownership points to the potential for decades of strong growth even as some analysts warn the future holds tougher competition and dwindling profits.

To counter a slowdown late last year as the global financial crisis unfolded, the government halved taxes on purchases of small autos and is spending 5 billion yuan (Dh2.68 billion) on subsidies for purchases of light trucks and minivans in the countryside, where most of China's 1.3 billion people live.

Earlier this month, the purchase tax was raised to 7.5 per cent, though subsidies also increased.

Happy with the results from this year's rescue package for the industry, Beijing is leery of risking a relapse, analysts say.

Huge market

"The message sent by the government is that they will not let the auto industry weaken, especially not in 2010," said Jia Xinguang, chief analyst at China National Automotive Industry Consulting & Developing Corp, an investment management company.

Enticed by the potentially huge market, automakers have poured billions of dollars into ventures here in the past two decades. Total sales this year forecast to shoot past 13 million units, up a third from last year's 9.8 million.

Meanwhile, sales in the US have faltered, with January-October vehicle sales totalling 8.6 million, compared with Autodata CorpChina's figure for 10.9 million in China during the same period.

The revival in sales has been opportune for GM as it struggles to restructure following a spell in bankruptcy court. Including minivans and other passenger cars, SAIC-GM-Wuling, GM's minivehicle venture in China, led nationwide sales in November, with 83,753 units sold.

Car sales in the main cities like Beijing and Shanghai are robust, but the zippiest growth has been in so-called second, third and fourth-tier cities. Chengdu, a city of 11 million, now ranks in the top four auto markets, with sales jumping almost 60 per cent over a year earlier in September, to 22,585 units.

The major city nearest the epicenter of a catastrophic May 2008 earthquake that left almost 90,000 people killed or missing, Chengdu did not suffer extensive damage, but it is now booming as money floods in to finance rebuilding in the quake zone.

Along the main roads ringing the city and to the airport stand cluster after cluster of newly built auto dealerships luxury brands like Jaguar, Porsche and Rolls Royce as well as more affordable foreign and domestic brands.