Reasonable competition urged amid auto price cuts

Analysts said cost controls will prove crucial this year for automakers currently entangled in the wave of price cuts in China, and industry associations have called on them to take competition in a reasonable and far-sighted manner.

One after another, around 40 international and local brands including Jetta, Volvo and Citroen are now offering discounts, voluntarily and involuntarily, of up to 150,000 yuan ($21,833) on around 100 models, most of which use gasoline, in the country.

Citroen fired the first shot on March 6. The French marque, together with local authorities, started offering hefty incentives to car buyers in Central China's Hubei province, where its vehicles are made, to cut inventory of its less popular models.

For the C6 sedan, whose sales stood in the double digits, the post-subsidy price is around 40 percent of its sticker price.

Honda, which has plants in the same province, soon followed suit, offering discounts of up to 80,000 yuan for some of its models.

Soon, more brands were dragged into the ring, including Volkswagen, the most popular marque in the country.

On March 16, SAIC Volkswagen announced that the prices of some SAIC Volkswagen models are cut by up to 50,000 yuan, which will be valid till the end of April.

The market's lackluster performance in the first two months this year resulted in more financial pressure on carmakers, so they turned to discounts to cut their inventory, said the China Association of Automobile Manufacturers.

Statistics from the CAAM show that 3.63 million vehicles were sold in January and February, down 15.2 percent year-on-year.

But the CAAM added that such price adjustments are short-lived. It cautioned that many of those models are usually older and dealers have exaggerated the campaign to attract customers.

Analysts at Bank of Communications International said nationwide price cuts will last until the Shanghai Auto Show in April, where carmakers will exhibit or launch their latest models, adding that cost control will prove crucial to their businesses because of financial pressure from hefty discounts.

SAIC Volkswagen said its sum earmarked for discounts is expected to reach 3.7 billion yuan.

The price cuts have proven to be a double-edged sword. For Citroen, sales of its C6 sedan soared in Hubei province, but potential buyers in other regions have adopted a wait-and-see attitude.

The side-effect has carmakers who did not follow suit caught in a dilemma. They, including Great Wall Motors, had to assure their customers that they will not cut prices at least until the end of the year and if they do, customers can get the difference back.

The CAAM has called on carmakers to take competition in a reasonable way.

"Carmakers should be far-sighted and work to improve their products, service and brand awareness to ensure high-quality development," said the CAAM on March 22, seeing more and more brands offering price cuts.

Some analysts said the fast rise of new energy vehicles in China has triggered the price cuts.

The CAAM said that conventional car manufacturers should stay sober-minded because NEVs and gasoline vehicles will coexist for a long time to come.

The China Auto Dealers Association estimated that passenger vehicle sales are expected to reach 1.8 million units in March, a surge from 1.5 million units in the same period last year.

Both the CADA and the CAAM are optimistic about the potential of China's vehicle market, which has been the largest in the world since 2009.

Overall sales this year are expected to reach 27.6 million units, up 3 percent year-on-year, according to the CAAM's estimate made earlier this year.