Auto Industry

Retiring the fleet

Why is Wuliangye selling its company cars?

CHINA

“Don’t ask a man to drink and drive“ was the request from Britain’s first drink-driving campaign, dating back to 1964. Fifty years on, bosses at Wuliangye are feeling the effects of two new campaigns demanding that state employees give up both activities. Restriction on gift-giving to government officials and extravagant banqueting on the public purse have been hurting sales of the liquor giant’s baijiu for more than a year (see WiC210). But now the firm’s bosses are being hit by a double-whammy, becoming the first executives at a state firm to lose their company cars too.

Tang Bochao, vice president at Wuliangye, told Chengdu Business Daily that the decision to sell most of its 500 cars is going to free up Rmb10 million ($1.65 million) in annual maintenance expenses. Even better, sales of more than 300 vehicles have already raised Rmb30 million in cash. Pride of place went to two Hummers (one yellow and one black, says Huaxi Metropolis Daily), both of which went under the auctioneer’s hammer this week.

The sales figures intrigued the media. CBN Daily reports that a Toyota with 160,000km on the clock was bought for Rmb530,000, while a Jetta was sold for more than the price of a new vehicle. “Who would buy a second hand Jetta for Rmb110,000?” one astonished car dealer asked, and China National Radio was soon speculating that subsidiaries had been tasked with paying over the odds, or that business partners might be doing the same to curry favour.

News of the auction was treated more positively online. “I respect the Wuliangye bosses. They’ve got guts!” one netizen applauded, but others wanted more state firms to put their fleets up for sale too. “The big fish haven’t shown up yet. In terms of the total numbers, this is nothing,” one netizen scowled.

(State asset holding company Sasac said this week it has no official estimate as to how many cars the state-owned enterprises in its portfolio currently own.)

The auction follows a round of directives from the State Council last November seeking to reduce the number of cars purchased by public officials. Policymakers have also instructed civil servants not to buy foreign models, although rules limiting car purchases by price or engine size have been implemented half-heartedly at best. One sticking point, says Tencent News, is that Chinese brands don’t fit the bill in image or quality terms. Just ask the president of Romania, who was ferried out to see the Great Wall in a Red Flag limousine, one of China’s proudest brands. On the way back to Beijing the brakes failed. Tencent says he was lucky to avoid a serious accident.

With more belt-tightening at the state-owned enterprises, could Xi’s anti-extravagance drive bite into the very top end of the market too? All of the leading brands in the super-luxury category (a market of about 5,000 cars a year in China) reported sales records last year, except Bentley, which saw a fall of nearly 3% to 2,191 units. Kevin Rose, Bentley’s sales director, told the Financial Times that there were “pure economic reasons” for the decline, especially slowdowns in the export trade and property markets.

But he cited the frugality campaign as another reason. “Philosophically, it’s less acceptable to show wealth at the moment and people are a little bit nervous about that,” Rose explained.

What about prospects for the wider market? LMC Automotive, an industry research firm, forecasts 11% growth this year, including commercial vehicles. IHS expects a 9% rise, while the China Association of Automobile Manufacturers (CAAM) is predicting a 10% increase, less than last year’s rise of almost 14%.

Last year passenger cars sold better than the overall vehicle market, rising 15.7% to 17.9 million units. Sales of SUVs were the most spectacular, jumping more than 49% to about 3 million units.

Once again, foreign brands did better than their Chinese counterparts. But CAAM cautions against too much optimism for the year ahead. “Vehicle sales are facing pressures brought on by environmental protection, traffic jams and more cities limiting purchases,” warns Shi Jianhua, the association’s vice secretary general. “Demand for imported luxury vehicles will surely decline as the official frugality campaign spreads beyond the government and affects companies and individual consumers.”


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