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Auto Price War Breaks out
China's giant automaker Tianjin Xiali has quietly slashed the prices of its cars since June 24. One model has been cut by 15,000 yuan ($1814) to 76,500 yuan ($9250), while prices on other mdels have been reduced by 4,000 to 9, 600 yuan. The move has had an immediate effect on the market. At an auto fair near the Asian Games Village, all the 10 exhibited Xialis were sold in just one day,according to the latest issue of Beijing Today.
A senior official from Xiali says the tactic was to save money on advertising, and pass on the saving to the company¡®s customers. But one industry analyst says Xiali¡¯s deeper reason is to gain a bigger slice of the market cake. From the beginning of this year, pric for Jetta, Citroen ZX Volcane and Santana have fallen from around 150, 000 to 110,000 yuan. Just one week ago Citroen ZX Volcane made a sales promotion offering a new model originally priced at 160,000 yuan, is for 130,000 yuan. Several other manufacturers followed suit with their own price cuts after the announcement. Zhejiang-based Jili Group, the sole private car manufacturer in China, cut prices by 4,000 yuan ($482) across the board, while Chongqing Alto cut 5000-7000 yuan.
After experiencing consistent growth during the first four months this year, the automobile market has taken an unexpected dive, following the government's recent announcement that it had relaxed contros on domestic car prices.
According to the China Association of Automobile Manufacturers, auto sales in May stood at just 199,900 units, a 17 per cent drop from April. Output fell to 199, 800 units in May, down 15.4 per cent from the previous month.
The gloomy scenario came after an announcement by the State Development Planning Commission on May 20 that it had relaxed controls and was allowing domestic manufacturers full latitude in determining prices. The government¡®s intention in deregulating had been to stimulate demand in the auto sector, but the decision has had the opposite effect.¡°The announcement reinforced consumers'expectations of further price cuts and made them postpone purchases, but the government has in fact already approved dozens of price cuts by carmakers over the past two ars,"says Jia Xinguang, a senior analyst with the China Automotive Industry Development Research Institute.
Well-known economist Chen Huai predicted the price cut on autos last year. He thinks this phenomenon is natural. Each mature product has a course of devaluation, such as cell-phones and TVs. He says the price war will go on.
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