Booming rural market leads to increased minivan sales
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A stimulus plan encouraging rural residents to buy cars from the government has led to a surge in minivan sales.
From January 2009, the Ministry of Finance has been providing as much as 5 billion yuan ($732 million) to subsidize farmers' automobile purchases. Farmers who buy light trucks and minivans get a 10-percent discount, with a subsidy ceiling of 5,000 yuan ($737).
"The subsidy policy has boosted China's market in its vast rural areas," said Li Jianguo, general manager of Sale Department of Karry Auto Sales Co. "There's a very direct link between the government's efforts to boost rural consumption and car sales. Both farmers and enterprises benefit from it."
He suggested that China should learn from Japan, the biggest minivan country in the world with over 20 million small cars. "China is much larger than Japan, so its rural market is very attractive to all auto companies," he said.
The auto subsidies fit into China's wider push to help spread economic growth into rural areas, heavily dependent on agriculture. The rural areas are home to about half of the country's 1.3 billion people.
Li told China.org.cn that the subsidies of 2,000 to 5,000 yuan ($295 to $737) respectively, can be used to replace older vehicles.
From February 1, 2009 until January 31, 2013, farmers buying motorcycles receive a 13-percent refund with a subsidy ceiling of 650 yuan, according to China Daily.
ChangAn and SGMW are the two largest minivan makers, accounting for 21 percent and 51 percent of China's minivan market. Because of the auto-stimulus plan, ChangAn had sold 11.3 percent more units in the first two months of 2009 versus 2008. SGMW sales rose to 72,947 vehicles in February 2010, about 50 percent more than a year earlier, according to the China Association of Automobile Manufacturers.
As a new competitor, Karry Auto, predicted its sales will reach 100,000, an increase of 170 percent from 2009.
Market challenges
The surging market in China also has some challenges for minivan companies. Li Jianguo listed three difficulties that the central government should handle.
"First, the transportation facilities in rural areas should be upgraded," he told China.org.cn. China has built a smooth transportation system between city and small town, but roads around villages need to be rebuilt.
Second, both quality and quantity of gasoline in rural areas should be purified and purchasing power of Chinese farmers needs to be promoted.
Generally, farmers are mainly buying cheap, low-margin models and prices run as low as 30,000 yuan. "They are sensitive to differences in prices of as little as 100 yuan," Li added.
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