Automakers compete through price cut
Updated: 2011-07-19 09:08
CHANGCHUN-- Dong Yu, a resident of the city of Changchun in northeast China's Jilin province, was dazzled by the large quantity of discount offers posted in a local exhibition hall where an ongoing international auto expo has attracted hundreds of automotive brands from home and abroad.
"I have been tracing the price of BYD's F0 model. I found it to be a real bargain at the auto expo," said Dong, stopping in front of a booth owned by private automaker BYD. The company's F0-model automobile was selling for 27,900 yuan($4,313), a 5,000-yuan decrease from its original price.
BYD's promotional campaign is just one of many at the eighth China Changchun International Automobile Expo. The expo comes after China's auto market, the largest in the world, reported significantly slower automobile sales growth during the first half of the year.
Due to the removal of government incentives, new car purchase limits and rising oil prices, the country's auto sales registered a mere 3.25-percent year-on-year growth rate in the first half of the year after surging by 30 percent in 2010 and 50 percent in 2009.
"It's escalating into a price war. Almost every brand is on sale this year," said Li Junjiang, dean of the Economics School of Jilin University.
Domestic brands, as well as joint-stock brands such as Mazda, Buick Excelle and Chevrolet, are giving deep discounts to buyers at the auto expo. Luxury manufacturers such as BMW and Mercedes-Benz have also slashed their prices.
According to Li, the promotional campaign is a last-ditch effort for automakers, especially badly-hit domestic brands, to stimulate the market following the government's moves to withdraw stimulus policies and fight traffic woes.
To buoy the economy, the government slashed car purchase taxes for small-engine vehicles from 10 percent to 5 percent in 2009, moving them back up to 7.5 percent in 2010. However, this policy ended at the end of last year.
Beijing has adopted a raft of measures to rein in its overwhelming traffic problems, including hiking parking charges in downtown areas and establishing a car-quota system. The quota system allows only 240,000 new cars to be registered in the city this year, compared with the 800,000 cars that took to the streets in 2010.
"A surplus of inventory in the first half of the year has created new sales pressures," Li said.
Wang Danxing, a researcher from the Jilin North Automobile Industry Information Development Co Ltd, said Japanese automakers, who reported slipping market shares in China due to production disruptions caused by Japan's March 11 earthquake, will take much greater steps to promote sales in the second half of this year.
"Japan's automotive giants have all pledged to increase production to reclaim their market share," he said.
According to Yang Hailan, a sales representative from China FAW, one of the country's biggest automakers, the Tianjin FAW Toyota Motor Co Ltd, has resumed production since the quake. Tianjin FAW Toyota Motor Co Ltd is a joint venture between China FAW and Japanese automaker Toyota.
"Production has basically returned to normal. Our distributors reported ample supplies by mid-June," Yang said.
FAW Toyota Motor Sales Co Ltd, a sales company which is also jointly owned by China FAW and Toyota, is offering a preferential benefit package to people who purchase Corollo and RAV4 automobiles at the Changchun auto expo. The package includes a compulsory auto insurance policy worth 950 yuan, a 1,000-yuan gas card, a free test drive and a 1,000-yuan cash premium for a second-hand auto evaluation.
"Our prices offered at the expo are the lowest of the year," he said.
Shen Shuai, a salesman with the northeast sales division of Guangqi Honda Automobile Co Ltd, said the Guangzhou-based joint venture is offering expo buyers a 1,000-yuan cash premium, a gift bag worth 3,000 yuan, a 1,200-yuan insurance policy and a chance to win a laptop.
"We are offering a maximum of 45,000 yuan in preferential benefits for special auto models," Shen added.
According to Wang Danxing, the only way for domestic automakers to avoid the price wars is to adjust production.
"Domestic brands have to stop chasing after profit growth exclusively. To achieve sustainable growth, they should gradually steer to the middle- and high-end auto market through technological innovation and restructuring," he said.
Song Donglin, head of the Jilin University of Finance and Economics, echoed Wang Danxing's views, suggesting that Chinese automakers should identify market changes and develop new models that will cater to the tastes of the market.
"Following changing consumption attitudes, vehicles targeted at middle- and high-end consumers will spark the auto market in the near future," Song said.
Citing the development of the world's major automotive powers, such as the United State and Japan, Li further urged the country's automotive sector to improve industry concentration through mergers and acquisitions.
"Only by creating a higher degree of industry concentration can the country's automakers become powerful," Li said.
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