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Price war expected at Shanghai auto show

Monday, 17 April 2017

Shanghai: Global carmakers converge on China for the Shanghai auto show this week, with the industry bracing for a sharp sales slowdown and potential price war as competition stiffens in the world’s biggest car market.

Manufacturers have reaped a windfall as the fast-expanding Chinese middle class hits the road, but clouds loom as Volkswagen, Toyota, GM, and other top nameplates pitch their latest models starting this Wednesday at China’s biggest auto showcase.

Passenger-vehicle sales have nearly quintupled over the past decade and logged another stellar performance in 2016, surging 14.9% to a record 24.38 million, according to the China Association of Automobile Manufacturers.

But volume was skewed upward in 2016 by a government purchase incentive. As China’s decades-long economic boom loses lift, sales growth will essentially be flat this year and could even shrink in 2018 for the first time in memory, consultancy IHS Markit said last week.

In a boon for consumers, IHS Markit said there is already “a major price war descending on the market” as manufacturers and dealers slash prices to move growing stock.

“The threat now for international automakers is that if local players begin cutting prices … there will be a rampant price war across the market as automakers,” it said.

Last year’s sales set a 26th straight annual high-water mark, handily beating the record 17.55 million cars sold in the United States, which China zoomed past eight years ago to become the planet’s top market. But sales were boosted by the government’s halving of a 10% purchase tax on small-engine cars in late 2015. That tax has been raised to 7.5% this year and will be restored to 10% in 2018, with an expected dampening effect on sales.

More broadly, analysts say China’s automotive landscape is rapidly maturing as consumer tastes evolve, and success will depend on manufacturers’ capabilities in meeting those tastes. China now has a crowded field of mostly domestic carmakers, many of which won’t survive, said Johan Karlberg, a Shanghai-based partner with global consultancy Roland Berger.

“There’s just not room enough for that many players. Many of the smaller ones will simply die a slow, suffocating death,” Karlberg said.

Major carmakers remain bullish, but are scrambling to introduce a slew of new models aimed at consumers during the Shanghai show, which IHS said has taken on “major importance” as the dynamics evolve. Manufacturers are rushing in particular to capitalise on still fast-growing demand for sport-utility vehicles and “new energy” cars.

Electric vehicle sales have been government-subsidised partly to help reduce China’s notorious air pollution, and the Chinese market is now the world’s biggest. China market leader Volkswagen, along with giants GM, Ford and a host of electric-car upstarts, all have plans to ramp up their China offerings.

Ford will even try to sell its American-icon pickup trucks, while expanding its electric offerings.

“We still have a pretty good period of growth ahead in the Chinese market. It is THE strategic market for global carmakers. But now, it remains to be seen with which vehicles, and how.” said Marc Mechai, an analyst with Accenture in Paris.

Source by: Internet

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