Shanghai GM, the car-making joint venture between Shanghai Automotive Industry Corp (SAIC) and General Motors, on Tuesday (4 January) cut prices by as much as 11%, a move that reportedly could ignite a price war.
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According to a China Daily report published on the Xinhua news agency’s web site, Shanghai GM, the top Sino-foreign car venture in China, said the price of its Buick Regal sedans will be lowered by RMB20,000-26,000 (US$2,460-$3,210). It also slashed prices for its two-litre Chevrolet Epica sedans by 16,000-18,000 yuan (US$1,980-US$2,220).
Shanghai GM reportedly said its sales climbed by 29% to 325,000 vehicles last year compared to 2004. This helped it outstrip Volkswagen’s car venture in Shanghai, the former market leader.
“It (Shanghai GM) is taking pre-emptive price measures to deal with fierce competition in the large-sized car segment this year,” said Yale Zhang, a Shanghai-based analyst with CSM Worldwide Corp, told China Daily, adding: “The segment will account for major growth of China’s car market this year with new competitive entrants and price cuts of existing models. We will see lots of price cuts in the segment during the first half of this year.”
Toyota’s [fully redesigned] Camry, to be produced in South China’s Guangdong Province in May, is widely seen as a tough competitor in what will be the most fiercely contested market segment, the report noted.
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By GlobalDataThe Japanese car maker’s venture with Guangzhou Automobile Group has said that it planned to make at least 50,000 Camry sedans in 2006.
Shanghai GM reportedly said the markdown of the Buick Regal was to make room for a new Buick high-end sedan, to be launched in the first quarter of this year.
The company will also launch the Buick Excelle station wagon and the Chevrolet Lova compact car in the same period, it said, according to China Daily.
Hua Xue, chief executive officer of cheshi.com.cn, the Beijing-based website that sells cars online, reportedly predicted that prices of Chinese-made cars would continue to tumble by some 5% this year as a result of market competition and excessive vehicle production.
China Daily said that total production capacity in China is now eight million units a year, but only three-quarters of that capacity is used, according to official statistics.
Analysts reportedly say a price war in China’s car market will continue to erode profits.
Zhang Xin of Guotai & Jun’an Securities reportedly said profits from this sector in China would shrink by about 30% this year compared to 2005.
Statistics from the China Association of Automobile Manufacturers showed that the completed vehicle sector reported RMB17.4bn in profits during the first 10 months of last year, down 49% from the previous year, the report said.
Jia Xinguang, from China Automotive Industry Consulting and Development Corp, told China Daily that Shanghai GM’s performance in China would have an influence on whether GM can maintain itself as the world’s biggest carmaker in the face of competition from Toyota.
“The Chinese auto market has the biggest growth potential for both GM and Toyota. It is increasingly affecting their global race,” Jia said.
China Daily added that GM, which is losing market share to Toyota and other Asian rivals in the North American market, has not forecast its output for this year. It predicted last month that it would make 9.1m vehicles in 2005. Toyota announced last month that it plans to produce 9.06m vehicles globally this year, up from 8.25 million units last year.
The report said that, in China, GM has not revealed its total full-year sales for 2005 but, during the first three quarters of last year, the struggling US automaker sold more than 472,000 vehicles in China, up 27.8% from a year earlier.
“In 2006, we hope to maintain the growth momentum we gained last year,” a Shanghai GM official told China Daily.
Toyota reportedly expects its Chinese sales to surge by 54% to 179,000 vehicles last year from 2004 and is expected to continue to expand rapidly in 2006, the report added.
Officials from Toyota’s China operations told China Daily that the company also aims to increase sales of its vehicles produced with China’s First Automotive Works Corp to 200,000 units this year and 300,000 units in 2007, from 150,000 units last year.
Total sales of made-in-China vehicles are forecast to grow by 12% to 5.6m units this year, including 3m cars, the report added.
