Wheeling but Little Dealing in China

When Wang Li began selling cars at Greenway Motors’ Ford dealership here a year ago, customers were flocking in. Her first sale was a breeze. After a few questions and a test drive, the buyer settled on a white Ford Carnival for $13,000.

“We made the deal on the spot,” said the shy 31-year-old Wang, who took home a cool $100 bonus for her part.

These days, hardly anybody buys on impulse, if they buy at all. On a recent Friday, only three customers walked into Greenway’s showroom. Wang’s income has been sliced in half since last summer, prompting her to make cold calls to car brokers. “I’m going through the phone book,” she said.

It’s been a jolting comedown for Wang and many others in China’s once-sizzling car market. After surging at an annual rate of 35% or more over the last few years, prompting a flood of investments by U.S. and other automakers, car sales in China slowed to 15% growth in 2004.

Although that’s still a rapid increase -- U.S. auto sales rose a mere 1% last year -- the picture in China is worse than the numbers suggest.

Many of the 5.07 million cars sold nationwide in 2004 were relatively cheap models. Luxury makers such as BMW did terribly. Manufacturers cut prices to lure buyers, as did dealers, often selling at losses.

And the outlook for this year isn’t better. Analysts are expecting further slowing.

Experts attribute the slide largely to Beijing’s efforts to cool China’s overheating economy by restraining bank lending. The curbs make it tougher for dealers and consumers to finance purchases. But that isn’t the only reason. Many buyers are holding out for better prices, and others are chafing at the increasingly congested traffic and higher gas and other costs.

Foreign car manufacturers have responded by cutting prices, thinning their profits. They’re also facing increasing competition from domestic makers, while plowing billions of dollars into facilities in China -- investments that may now seem a bit too aggressive.

“Investing is committing suicide, and not investing is waiting for death,” said Jia Xinguang, chief analyst at Beijing-based China National Automotive Industry Consulting & Development Corp.

As Jia and most industry experts see it, the long-term prospects remain promising, thanks to China’s huge population, rising incomes and low rate of car ownership. China has just 24 million vehicles on the road, one-tenth the number in the United States, according to a new report by the Earth Policy Institute, a nonprofit environmental research organization.

Eventually, China figures to overtake the U.S. in cars, as it has already in consumption of refrigerators, cellphones and television sets.

But it probably will be a long and bumpy road. Indeed, the recent sales retreat underscores the uncertainties in a country where government interference in markets remains high and the middle class is still evolving.

Car sales are a vital part of China’s broader goal of establishing sustained economic growth by strengthening domestic consumption. But the government also must deal with its shaky financial system and high volume of bad loans. Hence the clampdown on bank lending, which analysts expect to be in place for at least another year.

After the banks tightened up, the proportion of buyers taking out auto loans dropped to less than 10% from one-third in the first half of the year, analyst Jia said.

Infrastructure problems also limit China’s car sales. Many cities lack sufficient roads and parking spaces. So while local governments are encouraging consumption, Jia said, “they’re also hoping that people will never use their cars after purchasing them.”

Shanghai, for example, auctions off a limited number of license plates every month, even though analysts say the practice violates national transportation rules. Last year, some buyers paid more than $4,000 for a set of plates.

Yin Liqin, a 23-year-old photographer, earns more than $600 a month, above the average salary in Shanghai. He couldn’t get a bank loan for a new car. So he withdrew money he had saved over two years, borrowed $2,400 from his parents and got a 2000 Volkswagen Santana for about $12,000.

Shu Zhenqiao of Beijing said her family could afford a car. Not that long ago, her husband, an electrician, had a nasty spill biking to work. He pleaded with her to trade in his old bike for a car. But she told him to forget it.

Like many middle-class families in China, the couple sock away much of their monthly income. Shu, who is in her early 40s, said they had to save money for their daughter’s university tuition and because they were unsure about their economic future. What’s more, she added, it’s not worth getting a car. “The traffic is bad,” Shu said.

Car dealers are turning to an assortment of tactics to stimulate buying. Chen Zhi, sales manager of a Volkswagen store in Guangzhou, said his staff recently hung up red lanterns and glued red-colored paper designs on showroom windows to “make people feel a happy holiday atmosphere.”

Shanghai dealer Wang Yanmin is giving buyers free trips to Bangkok. But he’s not optimistic. His monthly sales volume has fallen. Worse, Wang said, he’s lowered prices because of the cutthroat competition. “It’s like we’re killing each other,” he said.

At Greenway Motors, general manager Huang Yemao still finds it hard to believe how dramatically things have changed in a year. Last spring, his shop added $2,400 to the $27,800 sticker price for a new Ford Mondeo -- and people still rushed to buy.

Now, he said, he’s shaved as much or more off the list price because dealers in town have been aggressively discounting. “Everybody started to panic after the government tightened up on auto loans,” Huang said.

It’s been particularly frustrating for Huang, a Shanghai native who returned to China to open Greenway Motors a little more than a year ago after working for auto dealerships in Utah and Florida for a decade.

“Such heavy discounting would never happen in the U.S.,” he said, adding that car consumers, dealers and even manufacturers in China are all inexperienced. “The entire market is not stable.”

Cao Jun in The Times’ Shanghai Bureau contributed to this report.