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, when all 57 showrooms at the Race Course Automall in the southern Chinese city of Guangzhou had 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, dealerships recalled their staff and stayed open until the next morning selling to buyers packing the mall 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,” the 28-year-old Chen said as he looked around the almost-deserted dealership where he sells BMWs. “Those three to four hours of mad, frenzied buying are now over,” he said, noting that 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. “It’s been very quiet since.”
Guangzhou’s move follows similar restrictions in Beijing and Shanghai, illustrating how major Chinese cities are increasingly resorting to quotas to curb vehicle emissions and ease traffic congestion. Mizuho Financial Group Inc. (8411) predicts that will slow auto sales, which could threaten carmakers such as General Motors Co. (GM:US) and Volkswagen AG (VOW) that depend on growth in the world’s largest vehicle market to counter declining demand in Europe.
“The new car restrictions in Guangzhou re-confirmed this trend of more controls,” Ole Hui and Jeremy Yeo, auto analysts at Mizuho in Hong Kong, wrote in a July 3 report. “We think that more cities will follow suit as many cities are already overly polluted and congested.”
China, the biggest producer of carbon emissions, is home to 16 of the world’s 20 most polluted cities, according to the World Bank. Vehicle emissions account for more than a fifth of the most harmful particulates in Beijing, according to the city’s economic planning agency.
In Guangzhou, the average vehicle speed has dropped to about 20 kilometers per hour (12 mph) and is expected to slow further next year, the government says. There were a total of 2.41 million vehicles in the city at the end of May, more than triple the number of available parking spaces. That spurred the city to make its June 30 announcement that just 120,000 new license plates will be issued in the 12 months from July 1.
“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, said in an e-mailed response. “Second-and third-tier cities will make the largest contribution to growth in the Chinese auto market.”
GM, Toyota Motor Corp. (7203) and Nissan Motor Co. (7201) declined to comment on government policies. Honda Motor Co., Guangzhou Automobile Group Co., and the Guangzhou government didn’t respond to e-mailed requests for comment.
Despite Guangzhou’s controls, the central government won’t allow too many cities to impose limits on vehicle ownership because maintaining a stable economy is a priority, predicted Cao He, analyst with China Minzu Securities Co. in Beijing.
“If too many cities follow suit, it will surely damp vehicle sales and economic growth,” he said.
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, according to the state-backed China Association of Automobile Manufacturers.
The latest curbs are a further blow for dealerships, where average inventory bloated to more than two months of sales by the end of May, a glut that the China Automobile Dealers Association has said is unsustainable.
For Kobe Wu, marketing manager at a brightly lit and bannered Kia Motors Corp. (000270) dealership in Guangzhou’s Tianhe district, the policy means auto distributors will have to focus on improving customer service to earn a slice of diminishing business.
“This policy will hit the auto industry hard,” said the 27-year-old Wu, who together with his colleagues sold more than 50 cars on the night of June 30. ‘It will force dealers to change the way they do business.”
The abrupt way the Guangzhou government introduced the new rules also left consumers miffed. Vivian Xie, a 29-year-old English teacher who had planned to buy a Honda Accord this month, was too late in hearing about the restrictions.
“We joke now that in Guangzhou you can buy almost nothing,” Xie said. “Property prices are so high people can’t afford apartments and now even if you wanted to get a car, you can’t get one.”
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