Price War Escalates in China's Car Market

Strategic Insights -

Beijing's domestic car makers have sparked a new round of price cuts in an attempt to reduce inventories and gain market share. Tianjin Xiali Automobile Co Ltd has reduced the price of two of its Xiali models by about 8,000 yuan (US$965), while First Automotive Works Volkswagen Automobile Co Ltd has cut the price of its Jetta model by 12,000 yuan (US$1,445) in Chengdu. The price cuts are expected to lead to increased competition and ultimately benefit Chinese consumers, although some analysts predict prices will continue to fall after China's accession to the World Trade Organization (WTO).

Key Takeaways:

  • Tianjin Xiali Automobile Co Ltd reduced the price of two of its Xiali models by about 8,000 yuan (US$965) on August 26, with both models featuring electric fuel injection engines.
  • First Automotive Works Volkswagen Automobile Co Ltd cut the price of its Jetta model by 12,000 yuan (US$1,445) in Chengdu.
  • Jia Xinguang, a senior analyst with the China National Automobile Industry Development and Consulting Corp, attributes the price cuts to pressure from China's accession to the WTO.
  • China expects to reduce tariffs on automobile imports from 80-100% to 25% by mid-2006, with the biggest cuts anticipated in the first two years after WTO accession.
  • The domestic car market has seen about 15 price cuts among all brands this year, but the industry remains in the doldrums.
  • Chinese consumers are eager for mobility, with many expecting prices to fall further after WTO accession.
  • The price war is expected to increase competition and ultimately benefit Chinese consumers.

Statistics:

  • 8,000 yuan (US$965): The price reduction of two Tianjin Xiali models by Tianjin Xiali Automobile Co Ltd.
  • 12,000 yuan (US$1,445): The price reduction of the Jetta model by First Automotive Works Volkswagen Automobile Co Ltd.
  • 80-100%: The current tariffs on automobile imports in China, which are expected to reduce to 25% by mid-2006.
  • 25%: The expected reduced tariffs on automobile imports in China by mid-2006.
  • 15: The number of price cuts among all brands in the domestic car market this year.

Sources:

  • Asia Pulse - August 28
  • China Daily
  • China National Automobile Industry Development and Consulting Corp
  • WTO (World Trade Organization)