Motor Vehicles and Parts News
- Carmakers cut prices for market share
Date: 20-Sep-2007 Sources: (Shenzhen Daily)
AT the sprawling E-Kingo automobile dealership, which stretches for more than 400 meters along an expressway in southwestern China's Chengdu, prices are falling.
General Motors (GM) of the United States is knocking US$1,800, or 27 percent, off the price of its small Chevrolet Sail station wagon. China's Chery Automobile has marked down the price of its new crossover by 16 percent. Prices of nearly every brand have been cut.
'The discounting is getting more and more fierce,'said Lou Li, an E-Kingo manager. 'And we expect prices to keep going lower.'
Chengdu, capital of the southwestern province of Sichuan, is on the front line of China's automobile price wars, as companies battle it out in an increasingly crowded market. Nearly every major international automaker is now building cars in China. And legions of small domestic manufacturers also are churning out inexpensive models.
GM, which makes Buicks, Chevrolets and Cadillacs with a local partner, is offering interest-free financing on some models after watching its market share in China slide in the first half of the year. South Korea's Hyundai Motor has cut prices by as much as 13 percent recently, while Germany's Volkswagen lowered the price tag on some Passats by 7 percent.
All of that is pinching industry profits, said John Bonnell of market-research firm J.D. Power & Associates' Automotive Resources Asia unit in Bangkok. He expects things to get worse before they get better.
'People aren't willing to give up. As long as they have the resources to stay in the game, they will keep cutting,'predicted Bonnell. 'But it's not leading to a healthy industry.'
Cost controls and lower prices for locally produced components help cushion some of the blow from the relentless discounting, but not all of it.
The crowded field is helping dent the share prices of some domestic car firms listed in Hong Kong and on the mainland. They have risen this year but have underperformed the market.
'The sector is definitely lagging' behind the huge gains by China-related property, airline and consumer stocks, said Charles Cheung, an auto-industry analyst with Citigroup in Hong Kong.
The price-cutting also is an unwelcome development for GM, VW and other global manufacturers, for which China, the world's second-largest passenger-car market, is an increasingly important growth source. Car sales last year grew 35 percent.
For domestic companies, cost advantages are obvious, said Dong Jianhua, an analyst at Southwest Securities in Beijing. 'Foreign companies will be pushed to the upscale end of the market, and some may be driven out eventually.'But in the short term, he said, multinationals are able to make sacrifices in China while earning profits elsewhere.
Twin forces are driving the trend. First, cars are no longer the preserve of the very wealthy, and the newly middle-class Chinese buyers have more-modest means. They are much more price-sensitive and far less concerned about brand names.
Second, manufacturers are racing to expand production and gain the economies of scale and critical mass they need to survive. Companies are basically betting that slim margins - and even losses - are a worthwhile price of admission to the China market of the future.
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