As China rolls out its 5-billion-yuan (730 million U.S. Dollars) stimulus for carmakers, one city is pioneering its own package to lure rural buyers – and farmers are coming out strong.
LIFELINE TO CARMAKER
The pioneer is Jilin City, in the northeastern Jilin Province, where FAW Group, China's largest automobile company, counts on farmers to buy more than 70 percent of its Jiabao brand mini vehicles.
As the production base for the 0.97-liter to 1.3-liter Jiabaos, the city will benefit from central government's subsidies to farmers to replace their three-wheel vehicles or outdated trucks with small, 1.3-liter or less vehicles.
But plummeting sales have made it necessary for Jilin Province, where FAW is based, to throw a lifeline to the carmaker before the central government's money trickles down.
The province promised 100 million yuan as subsidies for farmers. Jilin City got 19 million, and rolled it out in mid February, before the program's planned launch in mid March. Jiabao, with an established sales and after-sales network in the city's rural communities, immediately benefited. Initial figures suggest almost all added sales went to the brand.
The company claims February sales in the province soared to 1,411 units, more than 1,000 percent up from 123 last February.
Surging sales have set long-idle production capacity into motion. The factory produced 2,488 units in January, and 5,300 in February. With the national bailout package coming into effect, the company is planning to make 7,000 units in March.
JIABAO: A CASE STUDY
The Jiabao, priced from 25,800 to 48,800 yuan, targets farmers who use small commercial vehicles extensively for personal and business purposes. With the government's 15-percent subsidy and tax-breaks, company official Liu Hongbo estimates mini vehicle sales could grow 10 to 15 percent countrywide this year.
Su Dongliang, 42, had considered buying a vehicle for three years. He has a small orchard in Yongqing Village near Jilin City. A vehicle would enable him to upgrade his sales from village market retail to city wholesale. As soon as he got word of the subsidy, he bought a 30,800-yuan Jiabao minivan in February for just 26,200 yuan.
"I can now crate my plums for sale in the city," he says.
Wang Chunxiang, 48, a widow in Jianhua Village near Jilin City, runs a grocery business with her son, Jiao Hailiang, 24. She bought the same 1-liter minivan as Su. "I wouldn't have bought it if it weren't for the subsidy."
She estimates about one in five people in her village of 3,000 lined up to benefit from the policy.
Wang Zhihou, Vice Mayor of Jilin City, says the policy benefits farmers, FAW, and the whole city. The subsidies of 3,000 to 5,000 yuan amount to a year's income for an average farmer. With the income generated by a new vehicle, it's no surprise farmers are flocking to car dealerships.
As the global economic crisis bites, China's government is betting on domestic demand. Beijing has announced bailout packages for 10 sectors, including the auto industry, whose sales surpassed the United States for the first time in January, and rural buyers are considered critical.
Gai Dongping, who heads Jilin City's Commercial Bureau, says the policy aims at stimulating demand and economic growth as the city's foreign trade and foreign investment suffers.
Vice Mayor Wang says the growth in car sales can spur car-parts makers, transportation, insurance, and create more jobs.
"It's just in time," he adds.