Chinese Car Dealers Face Unexpected Obstacle

On June 30, 2012 at 9pm, the municipal government in Guangzhou, China declared that new vehicle registrations for the month of July would be suspended, effective at midnight. This decision was made in an effort to limit congestion and pollution problems and to keep the number of new registrations capped at half of the total number for 2011. In a panic, dealerships reopened their doors for the three remaining hours of allowable new vehicle sales. Consumers swarmed the dealerships and hundreds of vehicles for sold.

In most cases, this sudden increase in demand would be a dealership’s dream come true. Unfortunately, these registration restrictions will create massive obstacles for the dealerships. There are nearly 10 and a half million residents in Guangzhou, but effective July 1, restrictions allow for only 120,000 new registrations to be issued in the next year.

Guangzhou is not alone either. Many other major cities in China are also using quotas by way of license plate lotteries and auctions to limit road congestion and air pollution. It is expected that smaller cities will also begin following in the footsteps of their larger counterparts.

In the past year, demand for vehicles had already fallen when compared to the prior year. Dealerships in Guangzhou were already facing inventories that almost doubled in May. Now, with these new regulations, it is fair to assume that those inventories with increase even more, potentially crippling the dealerships.

Though many vehicle manufacturers are making efforts to produce environmentally friendlier vehicles, perhaps the larger problem in these cities is the physical congestion on the roads. Overwhelming populations have put record numbers of vehicles on the roads. There are nearly 2 and a half million vehicles in the city that has only 800,000 parking spaces and the average driving speed in Guangzhou is just 12 miles per hour. These staggering facts have tied the hands of municipal leaders and, in turn, had a massive impact on dealerships.

So, what do you think can be done to help lessen the burden on the dealerships? How should these dealerships try to better manage their inventories during times of stagnant sales?


2 thoughts on “Chinese Car Dealers Face Unexpected Obstacle

  1. I’m from Shanghai and last month my cousin just bought a new car and paid about 65,000RMB ($10,000) for her license plate. In my city if you live in downtown area (even in suburban areas), you can use public transportation such as metro or bus, we have a very extensive public transportation system. I think the government has to improve the regulations but it seems to be very difficult because the huge population in China.

  2. These registration restrictions will surely have a massive impact on Guangzhou dealerships. However, these restrictions must be placed to solve the congestion problem. I believe that there is nothing that can really be done to change this situation but that management must be extremely prepared a few months before the effective date. I have been to Guangzhou once and found that most people in the city take taxis wherever they go.
    As for managing inventories during times of stagnant sales, management can research on how businesses with sales on certain holidays handle this situation. For example, Christmas card business only have sales during the winter; and flower shops only have sales during certain holidays. These situations may not be as extreme but are similar to these registration restrictions.

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