Cash For Clunkers Won't Turn Around The Chinese Car Market. Chinese Farmers Might Save GM Though

Bertel Schmitt
by Bertel Schmitt
cash for clunkers won t turn around the chinese car market chinese farmers might

The fact (if you can call it that) that China’s government will bring back a Cash-for-clunkers program caused headlines around the world. It also spurred news writers to new peaks of creativity. At the same time, Chinese farmers could protect GM’s honor. Let’s investigate.

Bloomberg reports from China that the government agreed on a plan to “revive financial incentives for consumers to trade in their passenger cars.” No details are available, because the “relevant ministries” are still hashing out minor details, such as which cars, how much, and for what. That lack of information does not deter from creative writing.

Never mind that the program is uncooked, CNBC already “heard” that China might spend “about 1 trillion yuan — $157 billion — or at best half the stimulus China got to recover from the credit crunch” on the cash-for-clunkers program. Is there a doctor in the house? Bloomberg writers got creative with the history:

“Government officials are under mounting pressure to revive consumer demand after the economy grew slower than forecast and vehicle sales slumped. China in 2009 rolled out a cash-for-clunkers program to counter the global financial crisis, spurring 49.6 billion yuan ($7.8 billion) in new car purchases the following year.”

Indeed, car sales in China did leap to a record 18 million in 2010. However, China’s 2009 cash-for-clunker program hardly caused the run-up to 18 million units in the following year.

Actually, China’s cash-for-clunker program was a dud. One year after its start in May 2009, only 1.7 billion yuan ($250m) were handed out, with 3.3 billion yuan ($486m) left in the kitty. It probably was the first time in China where money was given away, and there were no takers.

A second round of Chinese cash-for-clunkers, announced in June 2011, was quickly forgotten. It didn’t move the needle either and Chinese car sales ended the year 2011 flat.

Creative writers forget that China is not America. America is a land of clunkers. Half of the cars on America’s roads are over 10 years old.

The fleet in China on the other hand is very young. 10 years ago, the new car market in China was a little more than 2 million units per year. 10 years later, a used car market is just beginning to come into existence. People usually buy new or not at all. A back of the envelope calculation shows that half of the cars on China’s roads are not older than 4 years.

In any case, assuming $1,000 per car (it was a sliding scale), the remaining budget would have paid for some 500,000 cars, and not for the approximately 5 million more the Chinese car market had grown in 2010.

What was more successful in 2010 was a little known (at least in the West) program called “cars to the countryside” which gave money to farmers who bought a car. Millions of cheap Wulings and other minivans found their ways to places that did not even have car dealers.

The market for three-wheeled vehicles in China is estimated at 50 million per year. If only fractions buy a cheap car instead, the market is affected greatly.

In that regard, it is good to hear from Reuters that an unspecified round two of cars to the countryside is under consideration in China. Reuters was told that this program also has a cash for clunkers component, but I don’t think so. There are no clunkers in China’s countryside.

A revival of cars to the countryside would be a boost for an American car company, at least on paper. General Motors counts all of Wuling’s cars as made by GM. A few hundred thousand Wuling Sunshines more could help GM defend its rank as world’s largest carmaker in 2012. If those Chinese farmers won’t come back buying cars, then GM could lose the crown to Toyota.

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  • Daveainchina Daveainchina on May 31, 2012

    This is part of a bigger stimulus package somewhere in the 158 billion dollar range. Basically they are doing it for 2 reasons to show that the party is strong and stable during the change in leadership AND because they are worried at how the economy didn't grow as expected. China is basically betting on growth to keep civil disruptions down across the country. Bloomberg and New York times and a few other places have a great breakdown of this. Including analysis that this is only holding off and inevitable slow/negative- growth period. I see this stimulus as yet another way to cause inflation here in China. I wonder if the central government will be able to keep it under control this time.

  • Type57SC Type57SC on May 31, 2012

    Please excuse the analness, but half the light vehicles in the US are not "over 10 years old". The 10.8 figure from Polk is an average, not a median. There are 39% of US light vehicles are 10 or older according to the DoT. Even less for cars only.

  • Probert There's something wrong with that chart. The 9 month numbers for Tesla, in the chart, are closer to Tesla's Q3 numbers. They delivered 343,830 cars in q3 and YoY it is a 40% increase. They sold 363,830 but deliveries were slowed at the end of the quarter - no cars in inventory. For the past 9 months the total sold is 929,910 . So very good performance considering a major shutdown for about a month in China (Covid, factory revamp). Not sure if the chart is also inaccurate for other makers.
  • ToolGuy "...overall length grew only fractionally, from 187.6” in 1994 to 198.7” in 1995."Something very wrong with that sentence. I believe you just overstated the length by 11 inches.
  • ToolGuy There is no level of markup on the Jeep Wrangler which would not be justified or would make it any less desirable [perfectly inelastic demand, i.e., 'I want one']. Source: My 21-year-old daughter.
  • ToolGuy Strong performance from Fiat.
  • Inside Looking Out GM is like America, it does the right thing only after trying everything else.  As General Motors goes, so goes America.
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