China car price war went wild with over 50% slashed

Dongfeng Motor’s JVs With Peugeot, Honda and Nissan Slash Fuel Car Prices by Over 50% in China

The price reductions that began in China’s new energy vehicle sector, after Tesla began to slash prices at the beginning of the year to boost sales, has now extended to fossil-fuel-powered cars as fierce competition and low-buying power trigger a price war in China’s auto industry.

"Since last month, almost all carmakers have been cutting prices, as the competition is too fierce," a sales director at a dealership for a joint-venture carmaker told Yicai Global. “As March is the last month of the quarter, dealers will continue to introduce discounts to meet their quarterly sales targets,” he added.

Many JVs with foreign auto manufacturers such as Germany’s Volkswagen and Japan’s Toyota and Honda are offering discounts of between CNY20,000 (USD2,881) and CNY30,000, Yicai Global has learned.

"The big discounts being offered by Nissan, Honda and other vehicle manufacturers mean that dealerships also have to reduce their prices as their inventories are high. Some are slashing prices without end and even reducing the prices of new models," the sales director said.

Auto dealers have no choice but to cut prices as their inventory piles up. China's auto dealer inventory warning index reached 58.1 percent in February, a gain of 2 percentage points from the same period last year, but a drop of 3.7 percentage points from January, according to the latest survey released by CADA in February.

"Declining consumer purchasing power, especially on the lower end, is the main reason for the current price war. This led to a significant drop in sales of the cars made by Chinese brands priced under CNY100,000 (USD14,400) last year," a manager at a Chinese car manufacturer said.

Some 80.2 percent of dealers believe that February sales did not meet expectations, according to CADA data. They all mentioned heavy inventory pressure and poor cash flow. On top of this, fierce competition is playing with the retail price, squeezing profit margins.

Most dealers are running at a loss and have run up high debts, according to the manager. Manufacturers are encouraging dealers to buy products with big discounts so as to transfer the pressure downstream. However, amid the market downturn, it is difficult for dealers to make a profit after buying plenty of vehicles.

In the face of declining sales and to boost consumption, China’s central Hubei province has joined hands with automakers to launch a series of subsidy measures. Fifty-eight models from seven brands, where Dongfeng Motor works with Groupe PSA, Honda Motor and Nissan Motor, cut prices this month by more than 50 percent.

According to the promotional poster released by local dealers, Dongfeng Citroën C6, priced at CNY210,000 (USD30,282), can enjoy a comprehensive subsidy of up to CNY90,000 (USD12,978) from the government and enterprises. After the allowance, the Class B+ sedan reaching a wheelbase of 2,900 millimeter starts at CNY121,900, a price reduction of 43.5 percent.

In addition, the C3-XR with a guide price of CNY113,900 can enjoy a subsidy of CNY56,000, equaling a 50.8 percent cut. Priced at CNY179,800, Nissan Teana had a price cut of 22.2 percent, with the price of the Honda UR-V is down 27.6 percent at CNY246,800.

Dongfeng Motor’s passenger vehicle sales fell 4.4 percent to 2.2 million in 2022. In 2023, it set a sales target of 2.6 million, an increase of about 22 percent on last year. The start of a ‘price war’ is set to bring considerable growth for Dongfeng series passenger cars in the short term.

Chevrolet started offering discounts of as much as 70,000 yuan on the Blazer, which starts at 230,000 yuan, along with other models such as the Equinox and Monza.

Jilin province in northeastern China is offering 150 million yuan of subsidies this month for people buying cars made by FAW Group.

Discounts on individual cars go up to 37,000 yuan.

Sales of gasoline cars have been hit as EV demand continues to grow, spurred by price cuts from Tesla and BYD.

Sales of internal combustion engine vehicles fell 13 percent in 2022 while battery-powered car sales rose 74 percent and plug-in hybrids surged 161 percent, according to the country’s Passenger Car Association.

Ron Zheng, a Shanghai-based partner at consulting firm Roland Berger, said the move by the Hubei government is obviously aimed at stimulating car sales because consumers are still cautious about spending, while the models being discounted are mainly ones that need stock urgently cleared.

“The dramatic price drop will have a huge impact on the residual value of used cars, as well as brand loyalty,”  Zheng said. “I would say the move might be a bit short-sighted.”

Source: Dongfeng, Yicai global, reuters