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Since Shanghai GM announced price reductions on May 27, the three major automobile groups quickly followed suit. This raises an important question: Is this round of price cuts a premeditated strategy or just a temporary measure? Should the ongoing price war in China's auto market come to an end? Some industry insiders have offered a surprising analysis: The real "Waterloo" moment for the domestic auto market this year may occur between mid-to-late October and November, or even earlier. Only then can it truly be considered a full-blown price war.
How many vehicles are currently sitting in inventory, and what does this mean for the market? According to the latest data from the China Association of Automobile Manufacturers, China produced over 210,000 vehicles in May and sold more than 170,000, marking a 13.56% drop from the previous month and a 19.27% decline in sales. New inventory reached 32,600 units. In the first quarter of the year, there were over 80,000 cars in stock, and by April, that number had dropped to 43,000. By the end of May, total sedan inventory exceeded 140,000 units. In many local dealerships, manufacturers are returning funds and accumulating vehicles on their hands to meet sales targets. As a result, 140,000 is likely a conservative estimate.
This growing inventory is a key factor influencing pricing strategies in the Chinese auto market. On one hand, automakers are increasing investments to expand production capacity. On the other hand, the growth in consumer demand has not kept pace with the surge in supply. When supply exceeds demand, price cuts become inevitable.
In what the industry calls “Black June,†the three major domestic auto groups made significant price adjustments. However, these moves are not just about lowering prices — they are also strategic efforts to capture market share. While some executives claim they can no longer afford to cut prices, as it leads to losses, industry insiders know that such adjustments are part of a normal market cycle.
Over the past decade, profit margins in China’s auto industry have remained around 30%, compared to global averages of just 5-6%. With the entry of foreign automakers and China’s WTO accession, the market has become more mature and competitive. Price adjustments are now a regular occurrence.
As one brand manager recently told reporters, “Every product, including cars, has its price determined by two main factors: cost and market demand.†Despite the recent price cuts, no dealer is willing to set a profit margin as low as 5-6% at this point.
Consumers are becoming more aware of the market dynamics and are learning to “cross the river by feeling the stones.†But what about the inventory problem? A company representative stated, “If there is inventory, we won’t produce.†Yet, despite having over 140,000 cars in stock from January to May, no manufacturer has stopped production, and some have even expanded their operations.
According to a senior analyst, the national tariff was reduced by 25% in 2005, which led to immediate price adjustments for imported cars. Cars that remain in stock by year-end will likely see a “diving†price cut. This could lead to a concentrated and large-scale price adjustment in the second half of the year.
Manufacturers who understand these dynamics are actively analyzing the market, waiting for the right moment to introduce more reasonable and affordable pricing strategies.
By Li Lei, Beijing Reporter, Sichuan Online - Huaxi Metropolis Daily
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