Auto Industry

Queue for the bus

BYD looks overseas, after sales deadlock at home

Queue for the bus

BYD’s boss: Wang Chuanfu

“All politics is local” is one of the better-remembered pieces of advice from Tip O’Neill, a long-serving Democrat and rival to Ronald Reagan.

But it seems that China’s car sales are very local too, especially when it is city or provincial governments stumping up the cash.

That’s not to say that Chinese buyers have suddenly started preferring homegrown cars. In fact, foreign brands still rule the roost. Instead it’s further confirmation that when it comes to public procurement and financial support, local governments continue to favour carmakers located within their municipal confines.

So says Southern Weekend, in a report outlining how Chinese auto firms struggle to make sales in domestic markets where they lack a manufacturing presence.

One example came from May last year, when Chongqing’s government announced another round of subsidies for vehicles purchased in the latest incarnation of the “cars to the countryside” campaign. But it was then stipulated that the only cars to be covered by the scheme were those produced inside city limits.

Similar tactics abound in the procurement of city taxi fleets. In December, state broadcaster CCTV reported on a story from Wuhan in which more than 12,000 cars allocated to the city’s taxi fleet came from local producer Dongfeng Peugeot Citroen Automobile. In this case, the suggestion was more scandalous than procurement bias alone. The large majority of the cars went into service without an anti-lock braking system, CCTV alleged. It also claimed that vehicles were being bought for Rmb40,000 ($6,400) more than the market price.

Provincialism also prospers in sales of new energy vehicles, where weak market conditions make local government support even more crucial, either through the offer of subsidies to purchasers or in public investment for infrastructure such as plug-in charging stations.

Three years ago, a group of national ministries including the Ministry of Science and Technology and the National Development and Reform Commission endorsed a plan to promote energy-saving transport in 10 major cities. In addition to central government money, local authorities were told to provide subsidies too. Few followed the directive, despite the environmental upside. Many local governments were in a fiscal hole and lacked the resources to fund the programme, auto expert Jia Xinguang told the Global Times last month. But even when the finance was available, they didn’t want to waste it on subsidies for automakers selling cars made in other provinces and cities.

With disappointing sales of new energy cars (see WiC120), one of the sector’s flag bearers BYD Auto has been trying to switch more of its commercial focus to the sale of electric buses. But again, provincial politics has meant that progress has been halting except for the few locations where production is going on (such as its main base, Shenzhen). Recognising the deadlock, BYD bosses have announced negotiations with the cities of Tianjin and Wuhan, as well as with Yunnan province, to launch new production plants, presumably in the hope that this opens up sales access to the local markets. Whether this is a cost-effective way to pursue market share is left unsaid.

Another strategy is to put more emphasis on selling outside China. “Inter-city trade barriers [in China] are greater than those in overseas markets,” a BYD spokesman complained to Southern Weekend – doing so in the same week that the company signed a deal for its first international production joint venture, a bus factory in Bulgaria.

Since then, BYD has also announced that it is in negotiations to open its first wholly-owned production facility overseas, this time for an electric bus plant in California. WiC has been sceptical about a number of BYD’s past announcements that it is on the verge of a breakthrough in the American market. But the freer market environment and deeper commitment to new energy transport outside China might just be what the company needs to rev up its public transportation business, auto analyst Jia told the Global Times.

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