Government policies that prioritize production targets over market demand have led to overinvestment by carmakers. The resulting glut of vehicles has created lose-lose transactions throughout the sales chain, and spawned a variety of unusual practices.
CHENGDU, China - On the outskirts of this city of 21 million, a showroom in a shopping mall offers extraordinary deals on new cars.
Visitors can choose from some 5,000 vehicles. Locally made Audis are 50% off. A seven-seater SUV from China’s FAW is about $22,300, more than 60% below its sticker price.
These deals – offered by a company called Zcar, which says it buys in bulk from automakers and dealerships – are only possible because China has too many cars.
Years of subsidies and other government policies have aimed to make China a global automotive power and the world’s electric-vehicle leader. Domestic automakers have achieved those goals and more – and that’s the problem.
China has more domestic brands making more cars than the world’s biggest car market can absorb because the industry is striving to hit production targets influenced by government policy, instead of consumer demand, a Reuters examination has found. That makes turning a profit nearly impossible for almost all automakers here, industry executives say. Chinese electric vehicles start at less than $10,000; in the U.S., automakers offer just a few under $35,000.
Most Chinese dealers can’t make money, either, according to an industry survey published last month, because their lots are jammed with excess inventory. Dealers have responded by slashing prices. Some retailers register and insure unsold cars in bulk, a maneuver that allows automakers to record them as sold while helping dealers to qualify for factory rebates and bonuses from manufacturers.
Unwanted vehicles get dumped onto gray-market traders like Zcar. Some surface on TikTok-style social-media sites in fire sales. Others are rebranded as "used" – even though their odometers show no mileage – and shipped overseas. Some wind up abandoned in weedy car graveyards.