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Micro car blues
By GONG ZHENGZHENG (China Daily)
Updated: 2007-09-24 07:18

Micro cars should be a good option for oil-hungry China and its 1.3
billion people. Many local authorities have lifted bans on the car's use
after a central government order last year. But micro vehicles have still
not been welcomed by Chinese motorists as their demand slides amid
blistering growth in the overall auto market, the world's second-biggest
after the United States.

According to data from the China Association of Automobile Manufacturers,
sales of domestically made vehicles with an engine capacity of 1 liter
and less tumbled by 15 percent year-on-year to 493,800 units in the first
eight months of this year.

Meanwhile, sales of sedans with such an engine capacity dove 26.6 percent
to 165,100 units.

In contrast, overall vehicle sales in China surged by a quarter to 5.69
million units in the period.

Analysts attribute the decline of micro vehicle sales to insufficient
policy incentives and Chinese buyers' fondness for larger cars.

In April last year, China lowered consumption taxes on vehicles with an
engine capacity between 1.0 and 1.5 liters to 3 percent from 5 percent,
while raising charges on above-2.0-liter automobiles to 9-20 percent from
8 percent. Taxes on less-than-1.0-liter vehicles were kept at 3 percent.

The move, according to Yale Zhang, director of Greater China Vehicle
Forecasts for US industry consultancy CSM Worldwide (Shanghai) Ltd, is
not enough to get customers back to micro cars.

Zhang says extra substantial stimuli are badly needed for a micro car
"take-off" in China.

"People naturally love larger cars for comfort and status symbols. They
will not choose micro vehicles without special incentives," he says.

He suggests the government remove the consumption tax on vehicles with an
engine capacity of 1.0 liter and less and that the 10-percent purchase
tax on such cars should be slashed or cancelled.

Otherwise micro vehicles' market share will continue to shrink, he says.

Echoing Zhang, Zhu Yiping, from the auto association, says: "Chinese
buyers will continue to favor larger cars as it is a matter of face,
unless there are special incentives."

They also won't pick micro cars only to save money on oil because fuel
prices in China have not reached so high levels that they can't afford
due to the lack of a fuel tax, Zhu stresses.

Li Hanchen, a sales representative from an engineering equipment maker in
Beijing, has decided to buy a compact sedan like the Volkswagen Sagitar
and Ford Focus, instead of a micro car.

"It will really cost me more, but I can afford it. I would lose face if I
drove a micro vehicle," the 32-year-old Li said.

"My wife also prefers a compact."

Compacts with an engine capacity of 1.6 and 2 liters is the biggest and
fast-growing segment in China's car market.

Analysts say micro car producers in China are mainly indigenous brands,
which haven't rolled out many of new models with improved quality and
design in the last two years.

There are only a small number of micro sedan models in China, such as the
Chery QQ, FAW Xiali, Geely Haoqing, Chang'an Alto and Hafei Lubo.

CSM's Zhang says micro car producers should increase spending in the
development of new products if they want to see a sales rebound in the
segment.

However, they don't appear to be doing so.

An executive from a major micro vehicle maker, who asked not to be named,
says: "This segment has a razor-thin margin and has been unworthy of
heavy investment."

Instead, domestic micro car companies are shifting to subcompact, compact
and even mid-sized segments, which are much more lucrative than micro
cars.

As a result, Zhang says, many micro vehicles will have to pull out of the
market as they fail to meet increasingly strict standards in China.

The Shanghai municipal government is expected to implement a new
technical regulation on small cars on December 1, which is reportedly to
force 60 percent of small cars in the city off the streets.

Zhang also says the subcompact segment in China has been experiencing hot
price battles this year, eating up the bulk of sales in the micro sector.

Prices of the 1.4- and1.6-liter Chevrolet Lova, made at General Motors
Corp's tie-up with SAIC Motor Co, dropped by as much as 10,000 yuan
recently to lure buyers, according to intelligence from cheshi.com.cn, a
Beijing-based portal tracking nationwide car prices.

Boosted by brisk vehicle sales and a booming economy, China's oil imports
have been growing rapidly in recent years.

The country, the world's second-biggest oil consumer, imported 110.4
million tons of crude oil from January to August, up 15.3 percent from a
year ago, according to customs data.

(China Daily 09/24/2007 page7)

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