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Since Shanghai GM announced price cuts on May 27, the three major automobile groups quickly followed suit. This raises an important question: is this round of price reduction a premeditated strategy or just a temporary measure? Should the auto price war in China come to an end? However, some industry insiders have made an unexpected analysis—this year's "Waterloo" moment for the domestic auto market may occur between mid-to-late October and November, or even earlier. Only then can it be truly considered a real price war in the Chinese auto market.
How many vehicles are stuck in the market, and how much inventory is being reported? According to the latest data from the China Association of Automobile Manufacturers, in May this year, China produced over 210,000 vehicles and sold more than 170,000, representing a 13.56% drop compared to the previous month and a 19.27% decline in sales. The newly added inventory reached 32,600 units. In the first quarter of the year, there were over 80,000 vehicles in stock, and by April, that number had risen to 43,000. By the first five months of the year, the total sedan inventory exceeded 140,000 units. In many local dealerships, manufacturers are offering returns and accumulating cars on their hands to meet sales targets. As a result, 140,000 units is still considered a conservative estimate. This situation has become a key factor limiting the pricing dynamics in the domestic auto market.
On one hand, automakers are increasing investments to expand production capacity. On the other hand, the growth in consumer demand is far outpacing the increase in vehicle output. When supply exceeds demand, price cuts seem almost inevitable. During the so-called “Black June,†the three major domestic car groups made significant price adjustments. In reality, these adjustments were driven by the need to capture market share rather than purely for customer concessions. Although a spokesperson recently stated, “We can no longer lower prices; we are already facing losses,†the industry understands that such moves are not unusual.
Over the past decade, profit margins in the Chinese auto industry have remained around 30%, while global car profits typically hover between 5-6%. With the entry of foreign automakers and China’s accession to the WTO, the supply-demand relationship has become more mature and standardized. Sharp price adjustments should therefore be seen as a normal phenomenon. A certain brand’s general manager once told reporters that, in fact, any product, including cars, has its price determined by two main factors: cost and market demand.
In June, the national auto market saw a large-scale price adjustment, which was dubbed “Black June†by the industry. Interestingly, there hasn’t been a single month from January to July where car prices didn’t experience some form of cut. Which dealer would now set a profit margin of 5-6% when pricing a vehicle? Facing the current market conditions, consumers are becoming more informed and cautious, often “feeling their way across the river†before making a purchase.
What about the inventory issue? A company official said that if there’s inventory, they won’t produce more. But how do so many workers remain employed on the production floor? From January to May, over 140,000 domestic cars were in inventory, yet none of the manufacturers stopped production. Some even expanded their production scale. According to a senior analyst, with the 25% tariff reduction in 2005, the prices of imported cars will adjust immediately. Cars that are partially in stock at year-end will adopt a “plunge†pricing strategy. Therefore, the domestic auto market may see a concentrated and significant price adjustment in the second half of the year.
He also noted that manufacturers who understand these factors are closely watching their competitors, analyzing the market, and waiting for the right moment to launch a reasonable and affordable pricing strategy.
Reporter Li Lei, Beijing reports for Sichuan Online - Huaxi Metropolis Daily.