More terrifying than production cuts: Pressure on the automotive consumer end doubles.

        While everyone is worried about the auto industry facing production halts and cuts due to the pandemic, another challenge has emerged—one that’s leaving automakers feeling particularly anxious. In fact, dealers are even more concerned about the large inventory of unsold vehicles piling up in their showrooms than they are about the inability to produce new cars.

        Recently, the China Passenger Car Association released its April forecast report on retail sales of narrow-definition passenger vehicles. Preliminary estimates indicate that nationwide retail sales of these vehicles this month are expected to reach 1.1 million units, representing a year-on-year decline of 31.9%. As a key segment of the consumer market, newly produced cars are primarily sold directly to consumers. If this critical consumption channel weakens, it will inevitably have far-reaching consequences for the automotive industry. In fact, some automakers with weaker financial resilience may soon face mounting liabilities due to rising production costs and strained supply chain pressures—this is no mere exaggeration. Early on May 1, new EV brands eagerly unveiled their April delivery figures. Yet, after grappling with prolonged production halts, factory shutdowns, and severe supply-chain shortages, most automakers have already voiced their struggles, seemingly foreshadowing just how dismal April’s delivery numbers would be.
        Looking at the new vehicle delivery figures released by the new EV manufacturers for April, compared to March—when four companies simultaneously surpassed 10,000 units—no single new EV brand reached the 10,000-unit mark in April. In fact, most of these companies experienced a significant month-over-month decline. Notably, Li Auto delivered 4,167 vehicles in April, a 62.2% drop from the previous month; Xpeng and NIO reported deliveries of 9,002 and 5,074 units, respectively, representing month-over-month declines of 41.6% and 49.2%. By contrast, Leapmotor, positioned in the second-tier group, managed to deliver 9,087 vehicles, marking another strong performance among the new EV makers. Meanwhile, Neta also performed well, delivering 8,813 units in April.
        For the significant fluctuations in new car sales data, Li Auto attributed it to "supply chain issues causing delays in new vehicle deliveries"—a reason that applies pretty much across the board to other automakers as well. Particularly, automakers whose factories and component suppliers are located in the Yangtze River Delta region have been hit hardest.
        Of course, the delayed delivery of new vehicles by the new automotive forces due to supply-chain issues is just one of the reasons behind the sales decline—other factors include rising prices for new energy vehicles and the ongoing impact of the pandemic, both of which are significantly affecting new-car sales. In fact, sales of traditional fuel-powered cars haven’t fared much better than those of new energy vehicles either. According to reports, April has traditionally been a peak season for new car launches, with customer foot traffic typically on the rise. However, this April, even Mercedes-Benz and BMW saw their in-store customer visits drop nearly 40% compared to the previous month, while Audi experienced an even steeper decline—exceeding 60%.

       On April 27, the China Passenger Car Association also released the third-week retail data for domestic passenger vehicles. During that week, the average daily retail volume of passenger cars in China was 29,600 units, a year-on-year drop of 46%. This indicates that end-demand has been weaker than expected. In the first three weeks of April this year, the average daily retail volume stood at 27,000 units, representing a significant year-on-year decline of 39%. This further underscores the relatively sluggish demand recently observed in the market. Meanwhile, historically, March to May has always been the peak sales season for the automotive industry in the first half of the year, with dealers offering substantial promotions and launching a large number of new models—especially as auto shows generate excitement, driving a noticeable upward trend in overall vehicle sales for automakers.
        However, due to the impact of the pandemic, the Beijing Auto Show has been postponed, and the launch of several highly anticipated new models has either shifted online or delayed. Meanwhile, under the influence of the epidemic, dealerships in regions such as Jilin, Shanghai, Shandong, Guangdong, and Hebei have seen both foot traffic and sales significantly affected, resulting in substantial losses for passenger vehicle retail sales. According to estimates by Cui Dongshu, Secretary-General of the China Passenger Car Association, the pandemic could lead to an approximate 20% decline in China's auto production output. That said, from the perspective of end-market pricing, although overall car sales remain sluggish, consumer transaction prices at the retail level have actually remained relatively high. This trend holds true for both new-energy vehicles and traditional fuel-powered cars, with end-consumer prices notably higher than last year's levels. Of course, this situation can also be attributed to the fact that, starting from January of this year, several domestic new-energy vehicle manufacturers announced price hikes for their models amid rising costs of battery raw materials. Subsequently, as international steel prices increased, the production costs for fuel-powered vehicles also rose accordingly. Although automakers of conventional fuel vehicles haven't opted for widespread, direct price increases, the reduction in promotional discounts at the retail level can still be viewed as a subtle form of price escalation.
        Additionally, this round of declining auto sales has been influenced not only by the direct impact of the pandemic, which led to production halts at some automakers, but also by the broader disruptions in the supply chain, the prolonged shortage of automotive chips, and rising prices in the international raw materials market—resulting in a multi-faceted blow to the industry. Since March of this year, carmakers in regions such as Jilin and Shanghai have been forced into widespread shutdowns due to the pandemic, causing a sharp drop in new vehicle production for several automakers. As we entered April, many automakers continue to face significant pressure to cut production further. Although several companies have already resumed operations, the overall decline in auto output remains difficult to reverse.

        However, compared to the losses on the production side, the pandemic's impact on residents' spending power and consumer confidence is likely to be more long-lasting. For the automotive industry, being unable to sell cars may actually be worse than simply being unable to produce them. Industry insiders previously noted that while supply chain shortages—or even disruptions—may seem urgent now, they’re almost certainly temporary and will eventually be resolved. The far more daunting and enduring challenge, though, is probably this: "Cars are available, but consumers are nowhere to be found." Indeed, "weak demand is set to become the dominant theme shaping the future of the auto industry."
        The Deputy Secretary-General of the China Association of Automobile Manufacturers and Director of the Brand Services & Exhibition Department, Liu Yan, frankly admitted that the biggest challenge currently facing China's auto market lies on the consumer end. "A lack of consumer willingness will inevitably lead to declining sales," she noted. According to data released by the National Bureau of Statistics, China's total retail sales of consumer goods fell 3.5% year-on-year in March this year—clear evidence of diminished purchasing power. In fact, following the recent pandemic, many businesses have been grappling with rising costs while seeing their revenues and profits shrink. For companies with weaker risk-management capabilities, the situation has become even more challenging, particularly for individual operators in the catering industry. Ultimately, this has eroded both their spending power and consumer confidence. Such developments are bound to influence people's overall consumption behavior—especially when it comes to major purchases like cars. Surveys reveal that numerous consumers who had previously intended to buy vehicles have now postponed their plans. The reason? The pandemic has disrupted income levels, leaving consumers less confident about the economy's near-term recovery. As a result, they’re adopting an especially cautious approach when considering high-value purchases such as automobiles.
        This is reflected in the retail market as many prospective car buyers postpone or even cancel their vehicle purchase plans. According to BMW's brand sales manager, aside from the domestically produced X5 (with its specific configurations and pricing), most models have seen price reductions—especially high-end vehicles like the BMW 7 Series and BMW X7. Since this segment of consumers has scaled back their demand for new cars, dealerships are offering attractive incentives to entice buyers. Yet, despite these deals, many people remain hesitant to buy due to income uncertainties caused by the ongoing pandemic. Mercedes-Benz faces a similar situation: while the E-Class has experienced reduced terminal discounts due to lower production volumes stemming from supply-chain challenges, other best-selling models now come with even more generous incentives. To boost sales, some dealerships have become more flexible with pricing policies on new vehicles. For consumers, rising car-buying costs coupled with unpredictable economic forecasts driven by the pandemic have eroded their confidence, further dampening their willingness to make a purchase. Meanwhile, competition between new-energy vehicles and large-displacement luxury models is intensifying rapidly. As evidenced by the growing number of traditional BBA (BMW, Benz, and Audi) owners trading in their current cars for newer, more affordable electric models, cost considerations are increasingly influencing consumer choices.

      Many BBA (BMW, Benz, and Audi) owners are now targeting new energy vehicles launched by emerging automakers, as they can purchase an eco-friendly car that offers both substance and prestige for about half the price of a traditional BBA model—plus, the ongoing costs of owning and maintaining such a vehicle are significantly lower. This shift reveals that, under the impact of the pandemic, the current automotive market adjustment has led to weaker demand among buyers who weren’t previously driven by necessity. Even those with genuine purchasing power have started to scale back their expectations—opting instead for joint-venture brands rather than luxury cars. As a result, aside from the truly affluent and economically savvy consumers with essential needs, the middle segment of the car market is facing substantial pressure and shrinking demand.
        Industry insiders also noted that this wave of the pandemic has further squeezed the already sluggish consumer market, leading to a contraction in demand. As a result, the industry is finding it difficult to hold high expectations for a major surge in auto consumption this year. An internal source from an automaker even suggested that a significant uptick in car sales may not materialize after this outbreak: "It’s been several years since the pandemic began—basically, everyone who could afford to buy a car has already done so. Plus, many car models have recently seen price hikes, which could significantly dampen consumers' enthusiasm for purchasing vehicles."
        Industry insiders have offered a cautious outlook on whether the market will see a surge in auto consumption this year. They believe that we’re currently in a transition phase, with new-energy vehicles gradually replacing traditional fuel-powered cars. As a result, many consumers remain cautious and adopt a wait-and-see approach. Moreover, under the combined impact of the pandemic and rising prices, some individuals are likely to temper their spending habits. Even if a wave of robust auto consumption does emerge post-pandemic, its magnitude is unlikely to be significant.
        To boost foot traffic into their stores, many automakers are racking their brains and going all out to attract customers for test drives and test rides. During our visits, we noticed that one of the new EV brands has set up a casual coffee bar in a shopping mall, where people can enter the lounge area during specific time slots to enjoy free coffee—and even have a chance to win car-buying blind boxes or receive exquisite gifts!

        Store staff explained that due to various unfavorable factors, car buying enthusiasm is low. Many consumers who previously had purchase intentions have postponed their plans, and the number of customers visiting the store for test drives is also decreasing. In April, store traffic dropped 50% compared to March, a significant decline. They hope to attract more attention to new cars by hosting this kind of light luxury event. In addition to the decline in visits from new car manufacturers, traditional fuel-powered 4S dealerships have also been affected. Several luxury brand dealerships I visited were sparsely populated. The May Day holiday, which typically sees a small surge in car purchases, was absent this year. Of course, this situation is not only due to a lack of cars available in the stores, but also to a decline in consumer spending power.

        Many netizens said they had planned to buy a car soon, but with the recent increase in fuel prices and the subsequent price hikes for new energy vehicles, they've seen complaints from car owners who are afraid to refuel, prompting them to give up on the purchase and decide to wait. Another netizen, who works at an educational institution, said they've temporarily put their car purchase plans on hold due to the unstable income caused by the pandemic. Other netizens also cited "new energy vehicle price increases," "high fuel prices," and "lack of money" as the most frequently cited reasons for not buying a car.

        In the automotive retail market, sales pressure is also spreading, and many previously strong brands, such as Japanese Toyota, are experiencing weakness. Reportedly, some dealers are reducing prices on models that haven't been discounted to maintain sales, forcing manufacturers to intervene and control prices to stabilize retail prices and prevent unfair competition among dealerships. This is currently the case across much of the automotive market. While it's not simply due to a decrease in retail demand, rising prices and extended waiting times are certainly deterring many potential buyers.

        This brings us to the price increases for new cars by Mercedes-Benz and BMW in the domestic market. Unlike the collective price increases for new energy vehicles, the gasoline-powered vehicle market seems to be unpopular. A closer look reveals that, while Mercedes-Benz and BMW have announced price increases, the increases aren't applied to their core models. A dealer also shared his thoughts on the Mercedes-Benz and BMW price increases in China. He stated that BBA enjoys significant profit margins in China, and some of the models experiencing price increases are high-end, with minimal impact on popular models. However, he fears that few automakers will follow suit with price increases. After all, the current market signals are negative, with many people delaying or forgoing purchases. Maintaining sales without price cuts is already a significant improvement. Clearly, weakening demand at the end of the market has made price increases for traditional fuel vehicles infeasible. While rising costs are certainly a concern, automakers are more concerned about losing previously sensitive customers than losing money.

       When survival itself is already challenging, raising prices and maximizing profits clearly no longer take precedence. As terminal market demand declines, the upward momentum of end-consumer prices naturally loses its strong support. Since March, the pandemic has significantly impacted Jilin, Shanghai, and surrounding regions, posing severe challenges to the automotive supply chain system and severely disrupting the normal production and sales of vehicles. Notably, major automakers such as FAW Group, SAIC Motor, and Tesla have seen their vehicle production bases temporarily halt operations one after another, severely affecting the overall supply in the automotive market.
        However, although these regions have gradually resumed production, the immediate challenges remain unresolved. New car deliveries continue to be delayed, dealerships are left with no vehicles to sell, and customer foot traffic continues to decline. While automotive companies in Shanghai and Changchun have already begun to steadily resume work and production, the ongoing pandemic has yet to subside. As a result, it will still take a considerable amount of time for the entire auto industry chain to fully recover to its previous levels. In other words, the automotive market in May is likely to remain stuck in a sluggish state.

        Industry experts say that, for now, the likelihood of a retaliatory surge in growth following the pandemic appears relatively low. However, once the pandemic situation stabilizes, the long-term trend of steady expansion in China's auto market will remain unchanged. Currently, automakers have already stepped up efforts to resume production and operations, yet dealerships continue to face significant challenges. According to information obtained from the China Automobile Dealers Association, many automakers have already relaxed or even eliminated performance targets for dealerships in March and April—particularly benefiting dealerships located in Jilin and Shanghai.
A dealer noted that although the store has been consistently conducting online livestreams to boost sales, the results have been minimal—new car transaction rates and foot traffic remain stubbornly low. As for when business might rebound to previous levels, it’s hard to say; at the very least, some time will be needed for recovery. Optimistically speaking, we’re likely looking at the second half of the year—things are pretty much over for the first half already. In fact, aside from the impact of the pandemic, car sales had already begun showing noticeable fluctuations as early as March. Many dealers reported a sharp decline in customer visits—places like Volkswagen, Nissan, and Toyota, which traditionally attract larger crowds, have all experienced varying degrees of reduced footfall. And let’s not even talk about those automakers whose sales typically hover around average levels to begin with. Interestingly, over the past few weeks, many established brands have rolled out significant discounts at the retail level, clearly aiming to spur more deals. Meanwhile, though BMW and Mercedes-Benz have officially announced price hikes, their actual prices haven’t changed. Yet despite these moves, consumer interest in making purchases still hasn’t picked up.

        In this context, even if the pandemic stabilizes and automakers return to normal production levels, it will still take time for the automotive retail market to fully recover. As a result, May may continue to see sluggish sales, making it challenging for dealerships to keep up with car sales. Currently, with consumers facing constrained purchasing power, automakers are now faced with a tough decision: prioritize profit or boost sales volume. However, at present, most major automakers appear to be focusing first on models that drive high volumes. After all, ensuring the smooth operation of the entire automotive industry chain—and safeguarding stable production volumes—may prove to be an even more critical priority than addressing short-term profit pressures. Although demand remains limited, leading to a likely continued decline in the May auto market, we must remain optimistic and work together to navigate these difficult times.

Translated from Sina Auto

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