Auto Industry

At the vanguard

Rural drivers are next in line for auto subsidies

At the vanguard

But could he fit in a minivan?

White Van Man is a British stereotype of recent times. A bad-tempered driver of small, colourless commercial vehicles, he still enjoys affectionate mention in much of the tabloid press, especially for his unreconstructed political views.

China’s own van drivers may not be in the White Van Man mould politically, but they have been getting more of a mention in their own media in recent weeks. They are expected to be the main beneficiaries of the most recent governmental effort to boost the domestic car industry. Under the “cars to the countryside” programme, they will receive financial encouragement to purchase new vehicles.

The campaign slogan is something of a misnomer. Although the Ministry of Finance confirmed last week that Rmb5 billion in subsidy will be made available, this is a plan more focused on light commercial vehicles than on passenger ones.

In particular it seeks to replace three-wheeled vehicles and outdated trucks with new models with an engine size of 1.3 litres or less.

Minivans are particularly suitable for sales to rural consumers as they better handle tough road conditions, carry goods as well as passengers, and cost less than many other models.

All the same, a new van will be priced at Rmb40,000 ($5,850) and up – still a little under 10 times the average salary in most rural areas. Even with discounts of up to Rmb6,700 (the main subsidy plus a sales tax cut for smaller engine type), most cannot afford to take advantage of the scheme.

The commercial van category is still an important one. JD Power, the auto consultancy, says China produced 9.3 million vehicles in 2008 but 2.8 million of those were in the minivan-type category. About half of this were sold in rural areas.

China was trumpeted as having overtaken America in car sales in January and February. But the comparison overlooks distinctions between different types of vehicle sales. The US sales figure covers passenger cars, pick-up trucks and sport utility vehicles. The Chinese one includes these product groups plus commercial vehicles, trucks and buses too.

There is also confusion over the terms of the current offer to rural drivers. It is reported that beneficiaries will receive a 10% subsidy on purchase prices up to a maximum of Rmb5,000 and the scheme will run until 2013.

But the Beijing Times has further suggested that the policy is likely to be further revised, even if the “general direction” has been agreed. Previously more focus was given to replacing older vehicles. But it seems that many farmers are reluctant to hand in vehicles that are working well. A number of agricultural vehicles have also not been licensed, so will not qualify for redemption.

The manufacturers have their own gripes. The China Association of Automobile Manufacturers worries that cannier rural buyers (especially migrant workers returning to the countryside) will take their new vehicles straight back to the cities and resell them.

Others complain that larger engine size models are blocked from sale, although it looks like small trucks may be added to the quota.

Companies who do manufacture the “work horse” vans for the countryside are delighted by the policy. “The minivan market is going to be a blue sea that more and more car manufacturers compete in,” says Yin Tongyue, the president of Chery, which sells the Karry model to buyers in third and fourth tier cities, and the countryside, according to China Economic Net.

It is too early to see a major sales impact. But a similar scheme designed to sell household appliances in rural areas saw local governments – on the hook for 20% of the subsidy cost – drag their feet on implementing central directives. There were also complaints that vendors charged unauthorised prices or sold inferior products, sometimes termed ‘seconds’.

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