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Bayerische Motoren Werke AG
Mizuho Financial Group Inc
General Motors Co
Toyota Motor Corp
Nissan Motor Co Ltd
Honda Motor Co Ltd
In three years as a car salesman, Rooney Chen had never pulled an all-nighter. Then came June 30. At 9 p.m. that Saturday, after all 57 showrooms at the huge Race Course Automall in the southern Chinese city of Guangzhou had already closed, the municipal government announced that to rein in congestion and air pollution it would cap the number of new vehicle registrations at about half of last year’s total and suspend new registrations for July—effective midnight. Caught by surprise, car retailers recalled their staff to sell to hundreds of buyers packing the sprawling collection of dealerships the size of four soccer fields.
“June 30 was the first time in Guangzhou’s history the mall’s dealers ever worked through the night,” Chen, 28, says as he looks around the almost-deserted dealership where he sells BMWs (BMW). “Those three to four hours of mad, frenzied buying are now over.” Sales were considered to have beat the deadline as long as payment was received by midnight, even if the paperwork stretched into the wee hours.
Major Chinese cities are increasingly resorting to quotas to curb vehicle emissions and ease traffic congestion. Guangzhou’s move follows similar restrictions in Beijing and Shanghai. Last year, Beijing began holding lotteries to issue car license plates; license issuances were capped at 240,000 for 2011. In Shanghai, car licenses have been auctioned since 2002; at present about 8,500 new licenses are allowed monthly.
Mizuho Financial Group (MFG) predicts that the Guangzhou tightening will slow auto sales, which could threaten carmakers such as General Motors (GM) and Volkswagen (VOW) that are depending on growth in the world’s largest vehicle market to counter declining demand in Europe. “The new car restrictions in Guangzhou reconfirmed this trend of more controls,” Ole Hui and Jeremy Yeo, auto analysts at Mizuho, wrote in a July 3 report. “More cities will follow suit, as many cities are already overly polluted and congested.” The world’s biggest producer of carbon emissions, China is home to 16 of the world’s 20 most polluted cities, according to the World Bank.
In Guangzhou, home to 10.3 million residents, the average vehicle speed is about 20 kilometers per hour (12 mph), and it’s expected to slow further in 2013, the government says. At the end of May there were a total of 2.41 million vehicles in the city, more than triple the number of parking spaces. That spurred the city to make its June 30 announcement that just 120,000 new license plates would be issued in the 12 months that started July 1.
Guangzhou’s move could push automakers to focus on smaller cities. “Even if further large cities in China do introduce car license controls, we don’t expect it to affect the growth potential over many years to come,” Andreas Hoffbauer, a VW spokesman in Beijing, wrote in an e-mail. “Second- and third-tier cities will make the largest contribution to growth in the Chinese auto market.” GM, Toyota Motor (TM), and Nissan Motor (NSANY) declined to comment on government policies. Honda Motor (HMC), Guangzhou Automobile Group (which manufactures models with Honda and Toyota), and the Guangzhou government didn’t respond to requests for comment.
Despite Guangzhou’s controls, China’s central government won’t allow many other municipalities to impose similar vehicle ownership limits, predicts Cao He, an analyst at China Minzu Securities in Beijing. “If too many cities follow suit, it will surely damp vehicle sales and economic growth,” he says.
Nationwide vehicle demand has already slowed this year as economic growth has flagged and fuel prices have jumped. Passenger-vehicle deliveries increased 5.5 percent in the first five months of the year, according to the state-backed China Association of Automobile Manufacturers, compared with a 6.1 percent rise in the year-earlier period. The latest curbs are a blow for dealerships, where average inventory bloated to more than two months of sales by the end of May, about double normal levels.
The bottom line: Guangzhou, where traffic is so congested that the average speed is just 12 mph, recently cut the number of new car licenses in half.