In China, the License Plates Can Cost More Than the Car

The Chinese automobile industry is suffering largely because of the quota system the government has adopted.  In recent months, Chinese consumers have paid 90,000 yuan ($14,530) for license auctions.  The price for a license plate has exceeded the cost of cheaper cars that thrived in the past.  As a result, only wealthier consumers can afford to drive, and many of them prefer the cars of foreign automakers; more than 90% of cars in Shanghai are made by foreign companies.  The entry of local Chinese automakers into the industry was possible almost solely because of their cheaper prices.  Without the price advantage, they would not have been able to compete with foreign companies, but now they are facing a similar problem.  They must decide on whether or not they are able and willing to make more expensive cars in an effort to compete with the bigger Western companies.

The struggle that Chinese automakers will likely endure is sure to be an uphill battle because they cannot compete with foreign automakers.  Barriers to entry into the Chinese car industry are evidently high, and local businesses should be hit the hardest.

Written by: Constantine Kostikas

Source: Businessweek.com

 

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