Car price war launched as sales slow

CHANGCHUN - Chinese car dealers have launched a price war as their inventories climb amid downward economic pressure.

The auto sector, which experienced years of explosive growth, saw sales up by a mere 1.4 percent year on year in the first half of 2015, when about 12 million vehicles were sold, according to the China Association of Automobile Manufacturers.

Sales in June fell by 5.3 percent month on month to 1.8 million, down by 2.3 percent compared with the same period last year. Industry insiders predict this year's growth to be a tepid 3 percent instead of the expected 7 percent.

At the ongoing International Automobile Expo in Changchun, capital of northeast China's Jilin Province, more than 70 percent of the cars on show are priced lower than their market prices in the past few months, according to the organizer. As one of the five major auto shows in China, the event, set to conclude on Sunday, is a good barometer of the market.

One Changchun showroom launched a special offer for Dongfeng Motor-produced Fengshen S30 models at just 60,000 yuan ($9,666).

Its manager, Sun He, said the showroom will lose 10,000 yuan with each Fengshen S30 it sells.

Such is desperation for sales as inventories climb. According to the China Automobile Dealers Association, the country's "Vehicle Inventory Alert Index" in June was 64.6 percent, 7.3 higher than the previous month and way above the alert level of 50 percent.

Wu Zhanlei, a sales consultant for joint venture FAW Mazda Motor Sales Co Ltd, showed Xinhua an offer sheet in which each car price was 5,000 yuan lower than what his store paid for them.

"We are doing everything we can so that our store can continue operating," Wu said.

Softening demand is the result of China's economic slowdown as well as the recent turmoil in the stock market, according to a report by the China Passenger Car Association.

The Chinese economy expanded in the first quarter by 7 percent, its lowest level in six years. Growth in the second quarter remains unchanged, the National Bureau of Statistics announced on Wednesday.

June's sudden stock market rout hit the country by surprise, posing challenges for policymakers already busy bolstering growth. At its worst, the key Shanghai stock index plunged by more than 30 percent from its June 12 peak.

"The economic slowdown, coupled with the stock market chaos, weakened the purchasing power of car consumers," Sun Zhiming, an auto industry specialist with the Jilin Academy of Social Sciences, believes.

Sun said it is unrealistic for China to maintain explosive car sales forever, especially after it ranked as the world's biggest auto market again with more than 24 million cars sold last year.

China's auto growth averaged at 24 percent from 2000 to 2010. It slowed to an average of 7 percent in the four years that followed.

Consulting firm WAYS predicted dealers will drop their prices even further in the latter half of 2015.

The price war will not be limited to budget domestic brands as foreign marques are also likely to become ensnared, analysts believe.

"In trying to price cars below 150,000 yuan, domestic Chinese carmakers are usually at an advantage, but as the price war continues, they could face competition from joint ventures," Sun Zhiming said.

Lower prices have benefited consumers like Changchun resident Zhang Ke, who has just ordered a new model manufactured by FAW-Volkswagen.

"It is thousands of yuan cheaper than usual," Zhang said.

Whether the price war will serve the purpose of boosting sales remains to be seen. But the low-price strategy is a double-edged sword, potentially damaging brand images that carmakers have tried so hard to create, particularly those trying to break into the premium market, Li Jun, with the Chinese Academy of Engineering, warned.

Li said that small carmakers without core technology might be kicked out of the market in the new phase of "micro-growth". He urged companies to ramp up research and development to survive cut-throat competition.

"The sales slowdown could bring both challenges and opportunities," the academic said. "Companies should learn to reinvent themselves if they do not want to be wiped out."