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ALTHOUGH China's auto market seems to be rallying, there are a few factors, apart from the soaring oil prices, that may hold back potential buyers.

Chinese customers, 80 percent of whom are first-time buyers and who are more likely to choose economic models, may be put off by the rising costs of compulsory insurance, car plates and parking fees.

Insurance costs

The owners of China's 130 million cars, motorcycles and tractors are required by the country's insurance regulator to buy compulsory vehicle insurance starting on July 1 as the government tries to protect the interests of injury victims and encourage safe driving.

The nationwide annual premium for family cars with less than six seats is 1,050 yuan (US$137), with the highest compensation of 60,000 yuan.

Buyers of a compact car costing around 100,000 yuan will spend another 5,000 yuan for insurance, up from 3,500 yuan before the new policy.

Hu Song, a Hai Tong Securities Co Ltd analyst, said that the new policy can also be seen as a kind of macro-control by the government to protect the market from overheating.

Amid rising costs, some auto dealers partly attributed the sales slowdown in June, a non-peak season, to the new insurance policy and have therefore stepped up measures to boost sales. "In order to ease the burden on buyers and boost sales, we pay the insurance for them as a discount for buying our models," a dealer said.

Dealers of General Motors Corp, Toyota Motor Corp, and FAW Haima Motor Co Ltd are offering such discounts, covering some of their models.

Car plate woes

Compared with the several hundred yuan increase on insurance, buyers are likely to be more worried about the sizzling prices of local car plates.

The successful bid price for a car license has been hovering around 40,000 yuan over the past five months, almost as high as the price of a new Chery QQ sub-compact model.

"The excessive high prices are more likely to dampen sales of small compact cars, such as Chery QQ and Fiat's Siena, as their targeted customers are price-sensitive," Wang Liang, a Chery dealer, explained.

Shanghai is the nation's only city to hold auctions for car plates since 2000 as the local government tries to limit the car population and ease traffic jams.

But the limited availability of plates has caused the average winning price to climb from 14,415 yuan in 2000 to 37,317 yuan this year.

More autobuyers choose to buy car plates from nearby cities, which cost around 3,500 yuan, almost one-tenth of the plate price in Shanghai.

Although there are limits imposed on cars with plates from other cities - for instance they are banned from using elevated roads during rush hours - the low plate prices are attracting cost-conscious Shanghainese.

"About 10 percent of cars we sold in Shanghai use car plates from other cities and the figure is expected to grow fast if the price remains high," said Tang Hua of Yongda Automobile Sales Group, Shanghai's largest car sales company.

Parking fees

In addition, the growing car population means there is a paucity of parking lots, which pushes up parking fees.

Many big cities such as Shanghai and Shenzhen have opted to hike parking fees to tackle complaints about overloaded parking lots, which raises driving costs, too.

The top price for parking cars in a garage of an office building located in Shanghai's downtown Jing'an District has risen from a maximum of 30 yuan a day to 80 yuan
http://www.shanghaidaily.com/art/2006/08/02/287885/Soaring_additional_costs_put_the_brakes_on_fervor.htm
 

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Chinese venders don't understand that a car's price doesn't matter as much as its insurance rating(How safe and theft-deterant is the car?. Insurance cost can equal or exceed monthly car payment) and reliability(It costs babies to get a car serviced. Hence high reliability is critical in overall ownership cost) in the US and Europe.

Hence the Chinese venders trying to move their cars on price alone is looking at a blood bath.
 

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1. Chinese car insurance market has been quite unsophisticated in the past, and is now starting to change. I don't pay attention to it anymore as my car is insured by the company, but certainly until a few years ago the only factors were value of the car (to calculate the non third party premium) and how much third party and passenger liability premium you opted for. No question of who the drivers were, age, driving history, whether the car was a sporty car or boring car (e.g. toyota corrola), garaged at night or not etc.

Recently I know they have introduced such things as no claims bonus and penalties for people with endorsements (points for offences) on their licenses.

2. I never insured a car in the usa, but 3,800usd for a corrola? They must hate you. maybe has something to do with the fact that you wrote your last car off! Try http://insurancepanda.com

3. Car maintenance in china is much cheaper than in the west. Two main reasons, one is the labour, the other is that the parts mark up from factory to end user is much less than in the west. This is because people with trading businesses have lower overheads. Historically also it might be related to much narrower range of models and no obsolescence so the parts people didn't need too much stock. The OEM's are trying to charge premiums for parts, but there is a limit to how far they can go in the face of competition from the independent aftermarket.

Having said all that, there are some interesting facets to a market where there are so many first time buyers who don't understand the full economic makeup of car ownership. Even in China, 1500RMB for the new extra insurance requirement is not a lot in the overall cost of owning a car throughout it's life cycle, but it is true that these things strongly influence consumers. The key is that people see the purchase of the car as if it's an investment and are therefore happy to buy into it, but fear running costs such as insurance and fuel as money disappearing down the drain. It will only be when they get to buy the next car that people understand about the depreciation element which is actually one of the biggest costs of car ownership.

I haven't seen the figures coming back from the embrionic second hand car market, and since Chinese brand cars have come on so much in the last 1 or 2 years it wouldn't be representative, but I would expect depreciation rates to be worse on local brand cars than foreign brand cars, which when things go full cycle will be an extra difficulty for the domestics (HATER PLEASE LAP THIS ONE UP MATE!). It's a bit like a Rover my sister had a few years ago - bought secondhand about 1 year old they thought it was a great deal, but even with that, the depreciation over the next few years made it more expensive to own than a VW.

Cheers.
 
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