Zeng Zhiling, director of Asia Pacific forecasting with LMC Automotive, said for most Shanghai residents, buying a car plate has become a form of investment rather than buying a permit to drive.

"It's like investing in stocks or the gold market as everybody believes the price will keep going up. That's why they're stormed into auctions regardless of the cost," he said. "None of the new policies will work if we can't change the masses' wrong expectations."

Zeng said the solution is to announce that the car plate can't be resold, but said the government will not go for this as it needs the money from the auction as part of its income.