China is seeing a slowdown in its car industry. As a result, consumers benefit from the increased number of discounts on cars.
Bill Shen wants to upgrade his 8-year-old Citroen to something fancier, maybe an Audi or a BMW. But the Shanghai resident is in no hurry. Cars keep getting cheaper.
Discounts of at least 30 % are being offered in major cities on hundreds of models. Audi’s top-of-the-range A8L luxury sedan, originally listed for 1.97 million yuan (US$317,000), is now going for 1.28 million yuan, according to Autohome, a popular car-pricing portal.
“Prices are getting lower all the time, even as cars are getting better,” said Shen, 37, who works for an auto parts company. “If it’s not urgent, one can wait.”
Consumers like Shen represent the biggest threat to China’s new-vehicle market, which overtook the U.S. in 2009 to become the world’s biggest. With the Chinese economy flagging, and government curbs on car registrations and stock market volatility deterring would-be car buyers, the auto industry is pulling out unprecedented offers to drum up sales.
Their success may be reflected in industry sales figures for July slated for release on Tuesday by both the Passenger Car Association and China Association of Automobile Manufacturers.
“This round of price cuts is the worst in China’s auto industry history in terms of the number of models involved and the depth of the cuts,” said Su Hui, a deputy division head at the state-backed China Automobile Dealers Association and a 26-year veteran of the trade. “Nobody saw it coming, not the government, not the automakers, not the dealers.”
Interest-Free Loans
Besides discounting prices, carmakers and dealers are offering incentives such as subsidized insurance, zero down-payments, interest-free financing and boosting trade-in prices, according to brokerage Sanford C. Bernstein & Co.
PSA Peugeot Citroen and Mazda Motor Corp. have warned of a looming price war that will damage profit margins. BMW AG said this month that slowing sales in China may force it to revise this year’s profitability goals.
General Motors Co. reported on Aug. 6 that deliveries fell in China for a third time in the past four months, down 4 % to 229,175 vehicles. Sales from Hyundai Motor Co.’s China plant slumped last month to a four-year low of 54,160 vehicles.
Hyundai is shaving as much as 30,000 yuan off its Santa Fe SUV and 20,000 yuan off the ix35, which were offered at prices starting from 219,800 yuan and 149,800 yuan respectively, the South Korean company said Wednesday.
A group of state-backed manufacturers cut its forecast last month for total vehicle sale growth to 3 %, or about 24.2 million units, which would be the slowest pace of expansion since 2011, when the government unwound massive stimulus measures put in place to stave off a recession.
More Affordable
Cars have become more affordable for Chinese consumers as incomes rose and more automakers started local production to save on the 25 % import tariff.
With the latest discounts, a Volkswagen Jetta priced at 51,900 yuan costs less than two times the average annual salary for an urban resident, estimated to be 29,547 yuan in 2013.
“It is a very good time to buy a car,” said Lin Huaibin, a Shanghai-based analyst at IHS Automotive. “Luxury carmakers began to offer bigger and bigger incentives starting from last year and the trickle down effects are forcing the mass market brands to cut prices as well.”