Summary
The car market in China is facing a massive slow down in recent times. The car sales have dropped to a two year low. There are three major reasons for this break down in the volume of sales. First of all, there is a general economic slow-down that the country is experiencing at present. Secondly, the competition from international field has increased immensely in the last few years and thirdly, the environmental concerns have given rise to the necessity of new legislations that restrict the number of cars owned by a person. It is worthy of note that the major losers in this respect are the domestic brands and some Japanese brands. The China Association of Automobile Manufacturers has expressed concern over the growing inventory accumulation by the sellers. The sales of the major Japanese car manufacturers in China started taking a down-swing two years ago following a territorial dispute between China and Japan. The sales of passenger cars increased by a meager 4.7% in November 2014 which the China’s automobile association points out as the slowest gain since February 2013 when the sales dipped due to the weeklong spring festival holidays.
The sluggish growth that the car industry has registered in November this year is the outcome of a major fall in sales by the industry giants like Nissan, Honda and Ford. While Nissan and Honda motors registered a as big as 12% dip in its sales the Ford Motor Corp. experienced 5% downslide in the sales of its passenger cars. The fall in sales has led to the inventory accumulation to reach alarming proportions. The China Automobile Association’s data indicates a rise in inventory holding since June this year which is almost 10-20% higher than the inventory levels of the previous year. The danger line for inventory accumulation has almost been reached. According to the experts in an emerging car market such as the one China has, an inventory worth of one and a half months’ sales should be the alert line. According to the China Automobiles Association data, in October 2014 the dealers have held almost 1.48 months’ worth of car sales as inventories. With higher inventories, the auto dealers are under pressure to strike bargains. The manufacturers are contemplating on new sales promotion activities. But the limit imposed in several cities on car ownership has hit the sales to a large extent. Following Beijing, Sanghai and Guangzhou, other cities are also contemplating on imposing such limits on ownership which is going to hit sales further.
Analysis
A deeper into the news article gives us a picture of the emerging car market in China. We can observe that the market has taken the shape of a monopolistic competition from an oligopolistic structure that existed earlier. With the opening up of trade and introduction of a free market mechanism more car manufacturers have entered the scenario and given the market a competitive structure. But a significant amount of differentiation exists in terms of the various types of models that have been launched by the major motor companies operating in the market. The scenario that presently exists points out to the fact that, some models are of high demand while the sales of others are kissing the ground. What the market needs now is not a horde of new models but an efficient set of sales promotion strategies. There is cut-throat competition among the dealers and manufacturers. So some intelligent deals will go in favor of the dealers. The manufacturers should come up with intelligent advertisement and selling activities. The selling activities have become all the more important following the leftward shift in the market demand curve following the imposition of the ceiling on car ownership.
Works Cited
Murphy, Colum. "China Car Sales Hit the Brakes." Wall Street Journal 10 December 2014.
