Limited sources for foreign autos is FTZ's main hurdle

The Tianjin commerce commission has recently released its pilot plan for the so-called parallel imports of autos in the China (Tianjin) Pilot Free Trade Zone, making it the second FTZ to give the go-ahead on the controversial program.

The parallel import program will allow independent auto dealers to directly import vehicles from a foreign production base, a sales channel that is parallel to authorized dealers.

The price for a parallel imported auto is about 10 to 20 percent lower than that of authorized dealers.

The parallel auto imports have existed in China in the gray for years.

Since last year, local governments passed several policies to support the gray market in a bid to help drop the ubiquitous high prices that Chinese customers pay for imported cars.

In February, the Shanghai FTZ started an auto parallel import program. Thus far, sales figures from each parallel-import dealer in Shanghai on average have been lower than expected, at about 20 units per month.

Industry insiders say limited sources of foreign cars, competition with automakers and their authorized dealers and poor aftersales services are the main reasons for the current lag in sales.

"Parallel-imported cars are in a predicament now," said Zhang Zhiyong, an auto industrial analyst, as quoted by The Economic Observer.

Jia Xinguang, senior analyst with the China Automobile Dealers Association, said, "The limited source of cars is the reason for the poor sales in the Shanghai FTZ."

Jia added that it is hard for parallel-import auto dealers to acquire foreign cars because manufacturers do not support the parallel import programs. Most dealers import cars from the United States as the nation's franchise rules are relatively lax.

"But even in the US, Chinese parallel-import cars are a disputed area," Jia said.

He said automakers should cut down on the number of its franchisees, that authorities should allow Chinese auto dealers to buy cars from foreign manufacturers directly and that individual customers should be allowed to purchase cars from overseas dealers.

Jia said the purpose of parallel car imports was to break the monopoly of authorized dealers and therefore lower the price for import cars in the Chinese market to a "reasonable" level.

Minimal impact

Jia believes the parallel car import programs will have little impact on China's auto market.

He estimated the current annual number of parallel car imports to be between 30,000 and 50,000, a drop in the bucket compared to the total import figure of 1.5 million last year.

"Parallel car imports are normally special models. Plus, the source of the car is limited, so it won't account for a big number," Jia said.

Luxury auto brands such as Mercedes-Benz, BMW, Maserati, Land Rover and Porsche are the top choices for parallel car imports. Analysts said that if sales figures for parallel car imports grow, it will influence automakers and their authorized dealers.

"It will hugely impact automakers if the number of parallel car imports reach one-tenth of China's annual imports of cars," said Jia, who added that cheaper prices will force automakers to alter their pricing systems.

For customers, cheaper prices are very attractive.

"If the aftersales tax and other services are the same, of course we will choose the cheaper one," said Wan Yang, 32, whose parents live in Tianjin and are considering replacing their car.

Wan said they plan to wait until the Tianjin FTZ policy is clear.

"We will consider buying one if there is a model among the parallel-import cars that we like, and that offer the same services as authorized dealers."

The parallel import car program will be expanded to the FTZs of Fujian and Guangdong provinces in the near future.