Automakers ax price

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Last updated at: (Beijing Time) Monday, April 05, 2004

Automakers ax price

Despite pressure from rising prices of materials, automotive company executives predict the cost of cars will continue to drop due to increasingly intensive competition in the industry.

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Despite pressure from rising prices of materials, automotive company executives predict the cost of cars will continue to drop due to increasingly intensive competition in the industry.

In the first quarter of this year, more than 10 new kinds of cars hit the market. At the same time, more than 20 brands, including Santana, Golf and Fiat, cut the prices of their old models. A Nanjing Fiat model now costs 121,900 yuan (US$14,686) after a 21,000 yuan reduction last month, the deepest cut so far on the market.

In the latest move, Fujian Province-based Southeast Automotive on Thursday axed prices off four models of its Lioncel series, with the maximum reduction at 10,000 yuan. The Lioncel models are sold at between 119,000 yuan and 166,000 yuan.

Industry analysts said the popular price-cut strategy reflected automakers' desire to earn larger market share in China, and they can afford to do so as the profit margin of cars in China is higher than other countries.

Automakers, like Beijing Jeep Co Ltd and Guangzhou Honda Automotive Corp, admitted, but they said it was not as high as the rumored 30 percent.

"My company forecasts 5 to 10 percent profit margin in the future. After several years in the Chinese market, it is reasonable," said Joseph J. Ozdowy, manufacturing director of Beijing Jeep Co Ltd. "Personally, I don't believe any automaker here can make 30 percent profit margin."

"The only way to continue to earn profit is to add volume," he said. "Fortunately, the Chinese market is expanding, you can still make some profits but you have to do so with additional volume."

Chen jianwei, manufacturing director of Guangzhou Honda, said that car prices in China will eventually drop when automakers improve their production methods and raise efficiency.

"However, I should mention one problem that resulted from the price wars - the great cost pressure on local component suppliers has led to problems like low quality of parts," Chen said. "I once did a survey personally and found more than 70 percent of the customer complaints are about problems with the parts."

Chen said all automakers in China nowadays face two major pressures - of survival in the market and also to be able to understand the social and economic environment in China.

In the first 10 months of last year, prices of steel products rose year-on- year, ranging from 18.1 percent to 23.5 percent, according to the National Bureau of Statistics. The rising trend is expected to last this year.

Ozdowy said Beijing Jeep, sympathetic to the difficulties faced by its suppliers, is helping them to reduce costs.

"However, that will not be at the expense of quality," he added.

He also urged the government to improve the traffic infrastructure and training of new drivers as major cities in China now face great traffic pressure.

China made more than 2.06 million cars last year, a 80.7 percent year-on-year rise. It is expected to make 2.8 million units this year, the National Bureau of Statistics said.

Source: Xinhua

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