Imported cars are not expected to suddenly flood into China after the quotas on import cars are removed and auto dealers' import licenses are cancelled, suggest analysts and industry insiders.

The changes are to take effect next year.

Big price cuts are unlikely, they added.

"Beginning next year, non-market conditions, such as administrative ones, will be phased out in the imported car market," said Lin Lei, president of Sinotrust Marketing Research & Consulting Ltd, a subsidiary of Sinotrust Group.

"Real market demand, not quotas, will decide the amount of imports, which is a fundamental change in the imported car market," Lin said.

Sinotrust Group is one of China's largest domestic consulting organizations.

China will remove quotas on imports of vehicles and spare parts beginning on January 1, in accordance with its commitments to the World Trade Organization membership. China joined the trade bloc at the end of 2001.

The Chinese Government will also stop issuing import licenses to auto dealers.

Auto dealers, authorized by foreign carmakers to sell import cars in China, will need to register with related government departments.

"In the past, an import license was like an extra competitive edge for auto dealers," said Wang Qing, an analyst with the State Council's Development and Research Center.

"They imported cars based on the amount granted by the licenses in their hands, because they didn't want to waste 'the invisible resources' that could be worth tens of thousands of yuan each on the black market, only to expire within one year," Wang said.

"Cancellation of import licenses will force auto dealers to import cars based on actual orders. The consumer groups for imported cars are usually stable. A sudden surge in demand is unlikely," Wang said.

Auto dealers, since May, have been slashing prices to sell existing stock.

"Some were even sold for less than cost. On the one hand, auto dealers are not sure about next year's situation, given such a big change, and they are eager to withdraw the capital they have invested," Wang said.

"On the other hand, consumers are tightening their purse strings in anticipation of further price drops next year.

"More than 60 percent of import auto dealers have been washed out of the market as a result. The survivors have been prudent in replenishing stocks," Wang added.

He was echoed by Wu Gang, an auto dealer in Chengdu, in Southwest China's Sichuan Province.

"We are not sure about next year's situation, so we haven't placed many new orders of imported cars yet. Our stock is almost empty," Wu said.

Jia Xinguang, an analyst with the China National Automotive Industry Consulting and Development Corp, predicted a temporary price jump is even possible in the first quarter of next year, given the lack of supply.

Dramatic price plunges are not expected next year.

"Prices of imported cars will remain stable ... and imported cars will account for 7 percent of China's total car consumption," said Wei-ming Soh, vice-president of DaimlerChrysler (China) Ltd.

China imported 136,800 vehicles in the year's first nine months, a year-on-year increase of 5 percent, indicate statistics from the China Trading Center for Automobile Import.

But the growth rate for last year was 34.7 percent.

Prices of imported vehicles dropped 16.6 percent on average, while prices of China-made vehicles decreased 11 percent on average, indicate the statistics.

Germany, Japan and South Korea remained the major sources of imported cars in the year's first nine months. German cars accounted for 34.24 percent of the total imports; Japanese cars, 30.59 percent; and South Korean cars, 25.04 percent.

Despite the small portion in all imported cars sold in China, imported cars from US rose 67.76 percent.

The types of imported vehicles sold in China will become more diverse, and, as a result, the import sources will become more diverse, Lin said.

DaimlerChrysler last Wednesday launched its flagship Chrysler 300C sedan in Beijing.

"It is true that Chinese consumers are not very familiar with the US brand. But we will change that," Soh said at the launching event.

"Two yeas ago, we introduced the Grand Voyager MPVs into China. Now, we are sending a strong message to China that Chrysler is also a brand for premium sedans. Next year, with the formal launch of the Crossfire two-seater sports coupe in China, we will send another message that Chrysler is a brand for roadsters," Soh said.

The Chrysler 300C, priced between 388,000 yuan (US$46,747) and 548,000 yuan (US$66,025), are sold at 85 authorized auto dealers.

But Wang said it takes time, in China, to foster a big consumer group for US cars.

"The newly grown-up ‘middle class’ may still prefer Japanese and South Korean cars, given China's relatively less developed road conditions, crowded parking lots, and possible extra charges on vehicles that use more fuel," Wang said.

"After all, those consumers who only care about individualization are still the tip of the pyramid."

(China Business Weekly December 21, 2004)