China is currently the world’s largest auto market, but even Chinese consumers have a limit to their disposable income. After years of double-digit growth that attracted automakers from around the world, China’s auto sales fell 14 percent from April to May. That’s prompted Chinese officials to fall back on a strategy proven effective in the past by both China and the United States; pay buyers money to trade-in old vehicles on new ones.
China’s rise to the top of the auto market in 2009 was helped by a government incentive program that mirrored our own “Cash for Clunkers” program. To combat cooling Chinese auto sales at the end of 2008, buyers were allowed to trade in cars and light trucks to receive a subsidy on the purchase of new, more fuel efficient vehicles.
Aimed at residents of rural China, the incentive plan helped drive automobile sales in an otherwise flat global market, before being discontinued in 2010. Urban Chinese also benefitted from incentive programs, funded by cities, on the purchase of electric vehicles.
The new program also seems to be targeted at rural Chinese, as it specifically includes trade-in allowances for farm vehicles, buses and heavy trucks. The trade-in amount is more generous than previous programs as well; buyers can now get up to $2,800 in subsidies, as compared to the $730 offered in previous programs.
Still, not all Chinese are sold on the program’s benefits. Rao Da, secretary-general of the China Passenger Car Association, said of the new program, “Car owners can make even more money in the second-hand market. So unless they can’t sell the vehicles there, I doubt it will do much to boost sales.”