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Parallel Imported Cars Cannot Play Leading Role Yet

Date:04-13 11:34 Source:CBN Authour:未知

Parallel Imported Cars Cannot Play Leading Role Yet

Parallel auto imports have embraced huge opportunities, but they also face problems and challenges. 

To a lower price and favorable national policies, parallel auto imports have good prospects, but they will not play the leading role in the imported car market in the short term and will continue to be a supplement to regular imports. How to overcome the difficulties, create an innovative business model, and improve the afterservice and insurance services for parallel imported cars – these are the issues that the whole industrial chain should be working together to address.

Imported cars have fallen from their pedestal. In 2015, China's imported car market encountered structural problems, such as falling supply and demand, rising inventory, forced discounts, and extensive losses among dealers. What with the industry changes brought about by "Internet Plus" and other initiatives and with the aftermath of the "8·12" blast, the imported car market went through more drastic changes than anyone would have anticipated.

While the imported car market experienced a general recession, the niche market of parallel imports expanded against the general decline and offest some of the winter chill. Driven by favorable policies, parallel imports appear to have rosy prospects, and the industry expected that parallel imports would account for more than 10% of all imported cars in 2015.

Parallel imports thrive

China Automobile Trading, a subsidiary of Sinomach Automobile, recently released the Annual Report on Chinese Imported Car Market 2015 and Report on Trend and Developing Strategy of the Chinese Imported Car Market. The reports pointed out that since 2015, China's auto market has undergone more profound changes than expected, production and sales growth has slowed down more quickly, and structural changes are much faster, which, combined with the impact of policy adjustment and new business models, subjected the auto industry and trading service industry to a period of substantial reform. It is expected that in the economic "new normal", the imported car market will contract in 2016 and will shift from "large-scale development" to "market supplement" with overall scale shrinking amid stability in the medium and long term. Structural adjustment in product, brand, price and channel will be intensified and parallel imports will grow as a supplement to regular imports.

Parallel imported cars are cars purchased by traders from overseas markets and brought to China for sale without the manufacturer's authorization. Such non-Chinese-spec cars, commonly known as "grey products", have come to China through unofficial channels for many years. In October2014, the State Administration for Industry and Commerce (SAIC) issued the Notice on Stopping the Registration of Exclusive Auto Distributor and Authorized Auto Dealer. Later the State Council also issued a notice to promote the development of parallel imports, and several FTZs were approved to carry out parallel imports on a trial basis. As a result, parallel import became a legal practice and the business received a boost. FTZs in Shanghai, Shenzhen, Guangzhou and Fujian are all pushing parallel import business.

In 2013, 84,000 cars entered China through parallel imports, rising to 100,000 in 2014 and 92,000 in Jan.-Oct.2015. Industry insiders predict that about 1.15 million cars will be imported  2015, of which parallel imports will account for more than 10%. Of non-Chinese-spec cars imported nationwide from January to October 2015, Tianjin Port accounted for 74.88%, leaving the other ports far behind - Qingdao (7.21%), Dalian (6.26%), Fujian (3.46%), Shanghai (2.52%), Ningbo (1.58 %) and Guangzhou (1.46 %).

In November 2015, Guangzhou Port opened the first RO-RO liner route for foreign trade with the Middle East, and 225 Middle-East-edition Toyota cars were unloaded there. This was the first batch of cars shipped to the Nansha FTZ by RO-RO liner after MOFCOM approved Nansha's pilot parallel import business on October 13,2015 .According to the plan, Nansha's parallel auto import business will reach 30,000-40,000 units per year, about 1/3 of the national total.

In addition to FTZs, some bonded port areas are also working faster on parallel imports. At present, there are five companies in China that have full authorization for parallel imports, including one dealing in BMW and two dealing in Mercedes-Benz.

General import market slows down

While parallel imports have developed steadily, China's general imported car market has experienced a chill such as it has never before seen. According to customs data, China imported 910,000 cars from January to Octoberof 2015, down 23.7% YOY.  The figures from 2013 and 2014 were 1.17 million and 1.42 million respectively. Statistics from the Association of Imported Cars showed that 78,000 imported cars were sold in October 2015, down 9.2% YOY.  The cumulative decline in Jan.-Oct. of 2015 was 21.2%.

In the past decade, China's imported car market has moved away from high-speed expansion. From 2006 to 2011, firm demand and competition in mass production drove this market to expand quickly; from 2012 to 2014, supply exceeding demand became the new normal for imported cars, and starting from 2015, the market has undergone unexpected changes under a new economy, new policies and a new model. The imported car market has seen reductions both in supply and demand for the first time.

In recent years, a series of mainstream imported models have been localized, and locally produced cars at considerably reduced cost are encroaching upon the market share of imported cars. But multinational automakers still want to achieve both large sales and high profits from imported cars. Because of this philosophy, China's imported car market has seen supply exceeding demand ever since 2012, which has directly led to the excessive inventory of today.

At a meeting held by China Automobile Dealers Association (CADA) to carry out data analysis in November, Hu Siyu, director of CADA's imported car committee, pointed out that the inventory of imported cars had become so large that it was no longer bearable, so dealers had no choice but sell cars at reduced prices, and auto prices had dropped sharply as a result. For example, the whole industry offered a discount of RMB100,000 in September of 2015, a steep price fall of 14.2%, resulting in extensive losses among imported car dealers. Besides, the "8·12" blast in Tianjin also affected the imported car market2015 to some extent.

But parallel imports have grown steadily against the same background. Lin Hanfeng said in an interview with CBN that while auto sales and dealers' profits both declined, channels were reshuffled, providing an opportunity for parallel car importers. Regular import channels are controlled by auto brands, and dealers suffer huge losses because those brands force unrealistic sales targets on them that result in excessive inventory. In comparison, parallel importers can freely choose brands and models favored by consumers and avoid imported models that are unsellable and might cause losses.To a lower price and favorable national policies, parallel auto imports have good prospects, but they will not play the leading role in the imported car market in the short term and will continue to be a supplement to regular imports. Xu Ting, president of Ping An Property Insurance, offered the following analysis. First, parallel imports have to be approved by government departments, and manufacturers and multinational automakers have concerns about this because they want to protect their agents. Second, there are three problems concerning afterservice for parallel imports.

1、Users find the repair and maintenance of parallel imported cars very inconvenient;

2、Parallel import dealers usually provide the "three guarantees", but they only cover key parts instead of the whole vehicle;

3、Although some parallel import dealers are in cooperation with 4S stores, they cannot enjoy the manufacturer's price advantages and their repair and maintenance is usually costly. Moreover, many parts for parallel imported models are unavailable in China and have to be purchased from foreign suppliers, which means high prices and freight charges.

According to Xu Ting, strongly supported by national policies, parallel auto imports have embraced huge opportunities, but they also face problems and challenges. How to overcome the difficulties, create an innovative business model, and improve the afterservice and insurance services for parallel imported cars – these are the issues that the whole industrial chain should be working together to address.


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