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Chinese auto makers race to the
bottom
BEIJING - January 1
not only ushered in a new year, it also saw the
advent of huge price reductions by some of China's
auto majors.
FAW Car Co Ltd, the
Shenzhen-listed arm of China's top vehicle
producer, First Automotive Works Corp (FAW),
slashed the prices of Mazda 6 sedans, produced
under technical licensing deals with Mazda, by
25,000-40,000 yuan (US$3,020-4,830). Tianjin FAW
Automobile Co, another affiliate of FAW, axed the
prices of its Vizi and Vela compact cars by up to
15,000 yuan the same day.
A slew of other
auto makers in China will also launch price cuts
this month, such as Nissan's joint venture with
Dongfeng Motor Corp and Kia's venture in eastern
Jiangsu province, market sources say. The prices
of many imported cars, including models made by
Volvo, Land Rover, Hyundai and Skoda, dropped over
the past week thanks to China's tariff cut under
its obligations to the World Trade Organization.
These price cuts are a continuation of the
red-hot price wars fought last year by
manufacturers eager to boost sales and clear huge
inventories, said Jia Xinguang, chief analyst of
the China Automotive Industry Consulting and
Development Corp. "There appears to be no other
way to attract customers, so producers will use
price cuts to attempt to get the upper hand this
year," Jia said.
Prices in the domestic
car market are forecast to fall at a faster rate
this year than last year. Average prices will drop
by 15% or more compared to last year's fall of
10%, said Cao Jianhai, an industrial researcher
with the Chinese Academy of Social Sciences.
Almost all domestic and foreign auto makers cut
the prices of their China-made cars last year,
ranging from local players Chery and Geely to
premium international brands Audi and BMW.
The growth of car sales in China has
slowed down sharply because of banks' controls on
car loans, high oil prices and customers'
persistent anticipation for cheaper cars, despite
manufacturers' frequent price cuts. Now these
price cuts have become so frequent that customers
are expecting even more to take place. Thus, they
sit on the sidelines awaiting further reductions,
which further depresses the car market.
Cao said the domestic car market will grow
by 10% year-on-year in 2005. Xu Changming, from
the state information center, predicted that total
sales of China-made vehicles will grow 12%
year-on-year to 5.64 million this year, with that
of passenger car sales increasing 16% to 2.64
million units. Xu estimated that total sales of
China-made vehicles and sales of passenger cars
reached 5.04 million and 2.27 million units last
year respectively, up 16% and 18% year-on-year.
Year-on-year growth in total vehicle and passenger
car sales in China stood at 34% and 75%,
respectively, in 2003.
"Car prices will
continue to be brought down mainly by auto makers
in China instead of imported cars, as the latter
only accounts for a tiny slice of the overall
domestic car market, although the nation will
continue to cut tariffs," Xu said. Imported
vehicles control some 4% of the domestic auto
market. China removed quotas on vehicle imports
and cut tariffs to 30% on January 1 from last
year's 34.2-37.6%. These tariffs will fall to 25%
by the middle of next year.
China
Association of Automobile Manufacturers
spokeswoman Zhu Yiping said domestic auto makers
should cut their production in order to maintain
price stability. "They discuss joint action in the
same way as members of OPEC [the Organization of
Petroleum Exporting Countries] do. Some auto
makers' price cuts were harebrained and destroyed
customer confidence," Zhu told China Daily. She,
however, predicted that prices in the domestic car
market would stabilize next year.
"Car
prices in China will tumble by 50% in four years
due to mounting competition, domestic producers'
expanding economies of scale, [and] lower income
levels and labor costs in China than in the
developed markets," Cao said. Domestic car prices
will ultimately be 40-50% lower than in developed
markets, according to Cao. Over-supply in the
domestic car market will continue to grow this
year as a result of new production capacity built
by producers and slowing car sales, he added.
Car production capacity in China will be
30% larger than real domestic car demand this
year, up from last year's 20%, he said. Car
makers' and dealers' total inventories stood at
nearly 600,000 at the end of last year, according
to reports. There are around 120 vehicle plants in
China, with more than 30 turning out passenger
cars. "Many auto makers in China will suffer
losses because of slowing sales and diving car
prices," Cao said.
(Asia
Pulse/XIC) |
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