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Fairness of Wuhan's Subsidies to its Local Cars Questioned by Industry Association

The China Automobile Dealers Association has raised questions about government-subsidized car purchases in Wuhan, the capital of Hubei province.

Image Source : China Visual

Image Source : China Visual

BEIJING, March 20 (TMTPOST) ——The Wuhan municipal government and the district government have cooperated with auto companies to boost sales of cars and subsidize only locally produced auto brands, according to the article published by the China Automobile Dealers Association(CADA) last Friday.

Such subsidies were considered unfair and caused consumers in other regions to wait and see rather than buying a car, leading to a significant drop in the transaction volume of auto 4S stores.

Promotional posters for various models from Dongfeng Group Motor Co., LTD. were spread in the industry on March 6. According to the poster, the price of these models will be slashed with government subsidies between March 1 and March 31.

People familiar with Dongfeng Group said that Dongfeng auto companies had a large inventory in early 2023 when the local government was required to promote consumption. The two sides hit it off immediately and introduced subsidies and price reduction measures.   Due to the excessive promotion of certain brands, the cooperation between car makers and the local government has attracted great attention. Other local brands in Hubei have to pay their way to join the price war.

But the models with a great price cut were those hard to sell in fact. For example, the total sales volume of Dongfeng Citroen C6 in 2022 was less than 3,000 units. Even if the inventory is cleared through a price discount, it will not have a fundamental impact on the market.   Statistics from the Wuhan Automobile Dealers Association show that 744,000 passenger cars were sold in Hubei Province in 2022, with an average monthly sales of 62,000 units.   Suggesting the Dongfeng brand occupied 40% of the total market, its monthly sales in Hubei Province were only 24,800 vehicles.

But once a price war starts, it is hard to stop. BYD announced a time-limited offer for its two main models on March 9, offering 6,888 yuan ($1,001) and 8,888 yuan ($1,292) off when customers pay a deposit of 88 yuan ($12.8) to order. Changan Automobile announced the start of discounted car buying season on March 10, limiting the prices of its several fuel cars and new energy vehicles. Chery Auto also announced a $10 billion ($1.46 billion) promotional plan on March 11.

These price cuts have attracted consumers to go to car stores, but consumers are also taking a wait-and-see attitude. According to the CADA, the passenger car market sold 414,000 units from March 1 to 12, down 17% year on year and 11% from the same period last month. The total retail sales of passenger cars have reached 3.094 million units, down 19 percent year-on-year since 2023. Except in Wuhan, the customer flow to 4S stores throughout the country has increased significantly, but the transaction volume has decreased significantly, and some consumers hold money to purchase and wait for the price reduction subsidy policy.

The number of companies involved in the price war continues to grow as sales fall. Beijing Hyundai announced a price cut for several models on March 13, with a maximum discount of 55,000 yuan ($7,998). On the same day, Geely Auto launched a discount subsidy plan of halved purchase tax, with a maximum discount amount of up to 30,000 yuan ($4,362).   Hozon Auto offered 23,000 yuan ($3,344) off for a model for a limited time on March 15.   Zeekrlife announced a limited-time free upgrade to some premium options on March 16.   In the evening of the same day, SAIC Volkswagen announced a subsidy of 3.7 billion yuan ($538 million) and a price cut of up to 50,000 yuan ($7,271) for all its models.

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