The September and October selling season is the one Chinese dealers plan their year around. This year it produced 1.618 million retail passenger vehicle sales in September, down 28.0 per cent year on year, and 1.643 million in October, down 27.1 per cent. Two consecutive months, each roughly a quarter below the same period last year.
The discounts were not the problem. They were historically large. Scrappage and replacement subsidies paid up to 12 per cent of the vehicle price, capped at RMB 20,000, with trade-ins at 8 per cent capped at RMB 15,000, on top of a halved purchase tax. On a RMB 200,000 car that is RMB 30,000 to 40,000 of support.
Dealers report the traffic came and the conversions did not. Roughly nine in ten say this year’s peak season was weaker than usual or absent, and the inventory warning index reached 63.2.
The subsidy pulled demand forward, then shrank
In 2025 China retailed 23.744 million passenger vehicles, of which more than 11.5 million involved a trade-in or scrappage. Roughly every second car sold was enabled by a policy transfer from a future purchase.
A car is not a frequent purchase. A household that planned to change cars in 2027 and did it in 2025 because the subsidy, the tax exemption and the discount stacked up will not buy again in 2026, whatever the price.
The support also got smaller. Subsidies moved from fixed amounts to proportional payments with caps, and industry estimates put the average scrappage payout down about 20 per cent and the trade-in payout down about 30 per cent. Purchase tax went from exempt to halved. Demand was borrowed, then the lender tightened.
Households are paying down debt instead
The macro numbers explain the rest. In the first half of 2026, household deposits rose RMB 7.58 trillion, to RMB 173.48 trillion by the end of June. Household loans fell RMB 366.8 billion, the first half-year net decline since records began.
That combination is precautionary saving: households with money are choosing to reduce debt rather than spend, and deferring large purchases. The consumer confidence index stood at 89.0 in September, below the 100 neutral line.
A car sits near the bottom of the deferrable list when confidence is at that level. If there is an old car that still starts, it keeps its job.
Price cuts have stopped working
McKinsey’s 2026 China automotive consumer survey found 22.2 per cent of buyers view the price war negatively, against 16.5 per cent who view it positively. For two decades, discounting was the most reliable lever in the market. It has inverted.
The mechanism is straightforward. In the first five months of 2026, 82 models were officially cut, with combustion cars down 14.6 per cent on average and new energy vehicles down 12.5 per cent. More than 600 new models launched in the first half, many discounted within two months of launch. A buyer who purchases today expects to be under water next quarter, and the used market amplifies it: a RMB 10,000 cut on a new car typically requires RMB 15,000 off the used equivalent to move.
Resale value, the quiet subsidy that made Chinese car ownership cheap, has effectively gone. When everyone knows the price is falling, waiting is the rational strategy, and waiting suppresses the volume that would have justified the next cut.
Two more reasons to wait
The first is quality. As development cycles compressed from 36 months towards 18, recalls rose to 1.65 million vehicles in the first half, of which domestic brands accounted for 308,000, up 681.2 per cent. Joint venture brands used the Chengdu motor show to advertise that they do not build rushed cars, which is an unusual thing to have to say.
The second is regulation. China published a revised national standard on motor vehicle operating safety in August, effective July 2027. In October, four ministries issued a draft notice on innovation design and validation testing, adding 51 technical parameters covering virtual controls, door handles, new human-machine interfaces and reclining seats.
The implication for a buyer is simple: the car on sale next year will not be the same as the car on sale now, and body structure, battery specification and sensor layout cannot be updated over the air.
Demand was pulled forward, subsidies were cut, prices keep falling and the rules are about to change. None of those is a discount problem. Together they explain a peak season that did not happen, and they suggest the fix will not be another round of price cuts.
Editor’s note: This is an adapted translation of the original Gasgoo report. It has been trimmed and restructured for readability for an international business audience. The full original (in Chinese) is at https://auto.gasgoo.com/news/202611/13I70477857C108.shtml.