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Price discounts expected in Q3
By Ye Sheng |
May 20, 2011, Friday
|
Print Edition
Print Edition
Vehicle prices have remained mostly steady because of the rising costs of raw materials and a supply shortage of certain hot-selling models. But as auto buying in China continues to slow down, price discounts on a wide range of vehicles are highly anticipated beginning in the third quarter.
Vehicle sales in China in April hit a 24-month low, with a 3.5 percent increase from a year earlier. That followed 6.5 percent sale growth reported in March.
Almost all car makers are reporting weaker-than-normal sales and orders. With prices staying steady, one survey showed nearly 40 percent of consumers still consider current car prices pretty expensive. Many are simply waiting to see if prices come down.
The surge in global commodity prices this year has gripped the auto industry. Steel, base metals and plastics derived from petroleum have all shot up. Then, too, labor costs are rising as workers demand more pay to keep up with Chinese inflation.
The March 11 earthquake and tsunami in Japan also hit the auto industry hard. Parts supply lines have been disrupted. Sales of Japanese brand vehicles suffered a 28 percent decline in April, according to the China Passenger Car Association. Some Japanese models, such as the Mazda 3, even rose as much as 6 percent in price.
The slowdown in China's car sales has been uneven, signaling that any price discounts will be, too. Luxury and SUV vehicles are still selling well. That seems to signal little chance for discounts among the top 10 best-sellers any time soon.
Pressure is on
Inflation will surely affect the purchasing power of middle-class consumers but not necessarily the wealthier class.
The Chinese auto industry has said it is estimating 10 percent growth in sales this year. Though lower than previous years, that target would keep China's auto industry humming along pretty well, especially for cash-rich bigger companies that benefited from several years of booming sales.
But as overall sales slow, competition for a smaller pool of buyers is expected to intensify. Pressure will be on dealers to move inventory, which is expected to rise to a two-month supply of unsold cars within a few months.
September may prove to be the decisive month for 2011 car sales trends. Some are predicting large discounts in and around the National Day holiday period in October.
If a price war does break out, prices could drop between 6 percent and 9 percent, higher than the 4 percent to 6 percent average that has characterized industry discounts in the past 5 years.
The economy and mid-priced car segments have already suffered from the end of government subsidies on more fuel-efficient cars. Smaller domestic car makers like Chery and BYD simply don't have much margin to play with on their economy models.
Instead, lower prices are expected to come first from Sino-foreign joint venture car makers that have the volumes and assembly-line efficiencies to enable more price flexibility. For joint ventures making cars in the 80,000 yuan to 200,000 yuan (US$12,300 to $30,770) price range, discounts would help revive interest from budget-minded buyers and also help the companies meet aggressive annual sales targets.
Vehicle sales in China in April hit a 24-month low, with a 3.5 percent increase from a year earlier. That followed 6.5 percent sale growth reported in March.
Almost all car makers are reporting weaker-than-normal sales and orders. With prices staying steady, one survey showed nearly 40 percent of consumers still consider current car prices pretty expensive. Many are simply waiting to see if prices come down.
The surge in global commodity prices this year has gripped the auto industry. Steel, base metals and plastics derived from petroleum have all shot up. Then, too, labor costs are rising as workers demand more pay to keep up with Chinese inflation.
The March 11 earthquake and tsunami in Japan also hit the auto industry hard. Parts supply lines have been disrupted. Sales of Japanese brand vehicles suffered a 28 percent decline in April, according to the China Passenger Car Association. Some Japanese models, such as the Mazda 3, even rose as much as 6 percent in price.
The slowdown in China's car sales has been uneven, signaling that any price discounts will be, too. Luxury and SUV vehicles are still selling well. That seems to signal little chance for discounts among the top 10 best-sellers any time soon.
Pressure is on
Inflation will surely affect the purchasing power of middle-class consumers but not necessarily the wealthier class.
The Chinese auto industry has said it is estimating 10 percent growth in sales this year. Though lower than previous years, that target would keep China's auto industry humming along pretty well, especially for cash-rich bigger companies that benefited from several years of booming sales.
But as overall sales slow, competition for a smaller pool of buyers is expected to intensify. Pressure will be on dealers to move inventory, which is expected to rise to a two-month supply of unsold cars within a few months.
September may prove to be the decisive month for 2011 car sales trends. Some are predicting large discounts in and around the National Day holiday period in October.
If a price war does break out, prices could drop between 6 percent and 9 percent, higher than the 4 percent to 6 percent average that has characterized industry discounts in the past 5 years.
The economy and mid-priced car segments have already suffered from the end of government subsidies on more fuel-efficient cars. Smaller domestic car makers like Chery and BYD simply don't have much margin to play with on their economy models.
Instead, lower prices are expected to come first from Sino-foreign joint venture car makers that have the volumes and assembly-line efficiencies to enable more price flexibility. For joint ventures making cars in the 80,000 yuan to 200,000 yuan (US$12,300 to $30,770) price range, discounts would help revive interest from budget-minded buyers and also help the companies meet aggressive annual sales targets.
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