New procurement regulations a win for domestic automakers

09:06, April 16, 2010      

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As the government prepares revisions to regulations on official car procurement, domestic automakers are preparing to grab more market share from foreign joint venture manufacturers.

The new regulation, slated to be launched in June, will mandate that government offices across the country purchase more than 50 percent domestically branded cars for their fleets in the future.

The regulation will also change the guidelines for vehicles to be purchased, basically excluding most brands made by joint ventures.

Ministerial-level officials cars should have an engine displacement of up 2.5 liters and a price below 350,000 yuan ($51,266) per unit. For a vice-ministerial level official, cars should be priced below 300,000 yuan with an engine displacement up to 2.5 liters.

Current regulations, issued in 2004, require ministerial level cars should have an engine displacement of up to 3.0 liter and priced lower than 450,000 yuan per unit, and for vice-ministerial level cars the engine displacement is the same but they should cost less than 350,000 yuan.

The new regulation will also lower the top price for other official cars from the current 250,000 yuan to 160,000 yuan, and adjust engine displacement from 2.0 liter to 1.8 liter.

"As long as the government lowers the purchasing criteria of vehicles, foreign producers will lose interest in bidding," said Xue Xu, professor at the school of economics of Peking University.

"The new regulation will provide domestic brands a golden opportunity to expand and compete with foreign rivals in the world's biggest auto market," said Dong Yang, secretary-general of the China Association of Automobile Manufacturers.

"More importantly, the domestic auto industry will get a boost as homegrown brands are favored by the public as official cars."

German luxury car brand Audi's huge success in China should be in part attributed to its almost exclusive control of the nation's high-end official car market since it locally produced its flagship model, the A6, in 1999.

Its image as an official car boosted its sales to 6,911 units that year and helped Audi beat its rivals, BMW and Mercedes-Benz, to top China's luxury car market. The company recently said that China would be its biggest market at the end of this year.

Li Shufu, chairman of Zhejiang Geely, commenting after his company acquired Swedish luxury brand Volvo that he will use Audi's business model in China to foster Volvo's future development here - indicating a new focus on the world's biggest government procurement cake.

"It's something that reflects the consumer philosophy when purchasing vehicles in China. For rich Chinese, they prefer the officials' car models which indicate car owners' prestige and provide them with more psychological satisfaction, and demonstrate the difference between them and ordinary people on the street," said Xiang Hansong, an auto industry watcher.

Statistics from China Machinery Industry Federation show that as one of the biggest items on the government's purchasing list, about 80 billion yuan was spent on vehicle purchases in 2008, accounting for 20 percent of government procurement that year.

That figure is expected to increase by 20 percent year-on-year to break 100 billion yuan by the end of this year.

That means after the new regulation is in place, domestic brands like Chery, Geely, Chang'an, Great Wall and BYD will potentially be in the running for some 50 billion yuan in orders from government.

To win the market, Chongqing Chang'an Automobile has established a key sale account department to focus on official clients.

Source: China Daily


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