Anyone shopping for a new vehicle in China is in the right place at the right time. The world’s largest auto market is in the midst of a heated price war, and the situation is only intensifying.
In the first quarter, a total of 649 variants of passenger vehicles, or about 20 percent of all vehicles on the market, saw transaction price drops of more than 10,000 yuan (US$1,454), analysis based on information compiled by research provider China Auto Market showed.
Back in February, that percentage was just 12 percent of all vehicle versions, and it was as small as 6 percent this time last year.
Photo: Reuters
As competition intensifies, domestic and international automakers are aggressively cutting prices to outpace rivals. Some companies initiated price reductions quickly off their own bats as they saw what was happening around them, while others have been able to piggyback off incentives offered by local governments as part of broader economic stimulus packages.
Toyota Motor Corp’s bZ4X, an electric SUV, has recorded the most significant sustained price drop this year in China, the data showed. The model’s 400km range Elite JOY version had a transactional price of 139,380 yuan last month, down 30 percent from December last year, while German premium makers Audi and BMW are also offering generous discounts, particularly on their electric models.
While it is not unusual for automakers and dealers to give out incentives to clear older model inventory, it has raised concerns among analysts about shrinking profit margins, not to mention potential compromises to quality and innovation.
China’s Association of Automobile Manufacturers has called for an end to the price war, saying it is not a long-term solution to a slowdown in sales and accumulation of stock.
It has called for a “return to normal operation” to ensure the auto market’s healthy development.
What is worrying is that it remains unclear whether some of the automakers that have desperately placed their hopes on price cuts and cash incentives to spur sales have an exit plan. Is this just a race to the bottom and let the bankrupt carcasses pile up? There is also the concern that spoiled customers might resist a return to normal pricing, which might result in a distorted market.
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