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Carmakers slash prices ahead of show

By Yu Qiao (China Daily)
Updated: 2007-04-21 15:50

A price war has broken out in China's fast-growing passenger car market ahead of the Shanghai auto show, which opens on Sunday.

Top carmakers have launched aggressive price cuts to lure increasingly sophisticated car buyers in China.

On April 10, Honda Motor Co's joint venture with Guangzhou Automobile Corp slashed the price of its Accord mid-sized sedan, City compact sedan, Fit subcompact car and Odyssey multi-purpose vehicle (MPV) by 5,000-20,000 yuan.

China's emerging carmaker Chery Automobile Co on April 3 cut prices of its QQ6 micro car, Flagcloud and A5 compact sedan and Easter mid-sized sedan by 4,000-23,000 yuan.

Other companies have also offered markdowns since March, such as the joint ventures of General Motors, Volkswagen, Nissan, PSA Peugeot Citroen and China's Geely Automobile Co.

All of the firms offering discounts were on the list of China's top 10 single carmakers in the first quarter of this year.

As a result, the average price of Chinese-made passenger cars tumbled by 0.8 percent in March from January, according to data from Cheshi.com.cn, a Beijing-based website conducting online car sales and tracking national car prices. 

Hua Xue, chief executive officer of Cheshi.com.cn, predicted average prices of Chinese-made passenger cars will drop by as much as 7 percent by the end of this year from January.

Last year, prices declined by 5.6 percent.

Growing market competition and the launch of new models is driving manufacturers to cut prices, Hua said.

"Carmakers also expect to take the upper hand to embrace the seasonal car-buying spree before the May Day holiday," he said.

According to data from auto industry consultancy CSM Worldwide (Shanghai) Co, some 52 all-new and upgraded passenger car models, including sedans, sport utility vehicles and MPVs, will be launched on the domestic market this year.

Volkswagen's venture with SAIC Motor Corp will launch an Octavia compact sedan from the German carmaker's Czech arm Skoda in May.

The 1.8-liter Octavia will compete with many early models such as the Ford Focus, Mazda3 and Honda Civic.

These new entrants will probably force carmakers to cut the prices of their old models to attract customers.

Xu Huiyu, a Shanghai-based engineer at a global IT firm, said he is waiting for new models and expects prices of the old ones to decline.

"I will go to the exhibition hall on Sunday with my wife and kid to look at new cars. That will help me make a final decision," Xu said.

The 35-year-old said his car budget is between 150,000 and 180,000 yuan one of the most competitive segments.

Growth of passenger car sales in China is forecast to slow this year, although it's still very fast compared to that of other major car markets.

This will spur carmakers to chase sales growth.

Yale Zhang, director of Greater China Vehicle Forecasts at CSM, said China's passenger car market will increase by almost a quarter year-on-year to 5 million units this year.

The pace is down from more than 30 percent in 2006.

But Winfried Vahland, president of Volkswagen Group China, was conservative on the 2007 growth.

Vahland said passenger car sales in China will only grow by 7 to 12 percent this year.

Sales of domestically made passenger cars climbed by 28.5 percent to 1.25 million units in the first three months, according to the China Association of Automobile Manufacturers.

Cost-cutting efforts

Analysts also attributed price reductions to cost-cutting efforts in recent years.

Volkswagen, the biggest player in China's passenger car market, slashed costs at its China operations by 20 percent in 2006 from the previous year, mainly through using more locally purchased spare parts and improving the production process and management.

According to a plan announced in 2005, the German group will cut costs in China by 40 percent by 2008.

Vahland said Volkswagen plans to raise the average local content rate of its Chinese-made cars to 80 percent in 2008 from 70 percent last year.

PSA Peugeot Citroen's partnership with Dongfeng Motor Corp said it cut costs by 1 billion yuan last year.

The Sino-French venture based in the central city of Wuhan plans to cut costs by an extra 1 billion yuan this year.

Analysts said price wars would hurt vehicle producers' margins this year.

Zhang Xin from Guotai & Jun'an Securities Co in Beijing said the entire auto sector's 2007 profits will grow by 20 percent year-on-year. That figure is down from a staggering 46 percent last year.