The "new trade-in" has a limited boost to the auto market

On June 13th, the Ministry of Finance and the Ministry of Commerce jointly announced the “2012 Old Vehicle Disuse Renewal Subsidy Vehicle Scope and Subsidy Standards”, clarifying the range and subsidy standards of the 2012 old car scrapped and renewed subsidy vehicles.

In this year's difficult auto market, there was a call for a rescue policy. Will the introduction of the trade-in replacement in 2012 stimulate the sluggish auto market and lead the introduction of the rescue policy?

According to the trade-in policy, trucks and buses that meet the subsidy standards will receive subsidies of 11,000 yuan and 18,000 yuan respectively. On the surface, this seems to be a good news for commercial vehicles that have fallen year-on-year this year.

This policy was indeed welcomed by the capital market. On the second day of the policy, the A-share segment saw a significant increase.

However, this policy is in fact only a routine practice for China's old car scrapping and renewal subsidies. The regulation of China's end-of-life car management has little relevance to the industry's expected rescue, and its stimulating effect on the auto market will be extremely limited.

GF Securities (000,776) stated that the retirement subsidies for old cars were a regular policy that began in 2002. The introduction of this policy is only a routine change, and it is not an indication of further stimulus policies.

The retirement subsidies for old cars are a general policy for the total amount of scrapped vehicles, channels, and structural adjustments and controls in the automotive industry. In 2009, in the first half of the year when the auto market was sluggish, the trade-in replacement included two parts, namely the phase-out update and the yellow mark car update, covering almost all models and was considered as a rescue policy.

However, because of the limited amount of subsidies, there was no significant incremental contribution to the auto market that year. According to the authoritative statistics from the Ministry of Commerce, in 2009 the subsidy funds allocated through the trade-in of new investments were only 200 million yuan, and it is expected that the total number of vehicles that enjoy subsidy standards will not exceed 60,000 vehicles.

Compared with the trade-in replacement in 2009, the subsidy range in 2012 has further narrowed to only trucks and buses. Moreover, the subsidy quotas of 11,000 yuan and 18,000 yuan are insufficiently attractive to the owners of vehicles. It is generally believed that "the scrapping is not as good as selling used cars." It is difficult to achieve the desired results.

Judging from the current scale of the more than 18 million vehicles in the auto market in China and the current social environmental sustainability, the government will be cautious in stimulating the auto market. The drastic changes in the auto market brought about by the bailout policy are not the best choice for companies and industries currently in the adjustment stage.

Therefore, according to the normal logic, the trade-in will not contribute much to the production of the auto market, nor will it be a prelude to the opening of the rescue policy.