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Homegrown Car Maker Catches on to Price Cuts

Price cuts in China's fast-growing car market appear to be endless.

On February 6, FAW Xiali, China's biggest compact car manufacturer, is expected to cut prices by as much as 10 percent.

Eight versions of the Xiali model will retail between 35,800 yuan (US$4,300) and 58,800 yuan (US$7,100) after the price cut, said the Tianjin-based company, owned by First Automotive Works Corp (FAW).

"We hope to benefit customers through the price cut and it is also part of our strategy to swiftly expand production," said officials from FAW Xiali.

The company's move follows closely on the heels of price cuts made by Geely, its arch-rival based in East China's Zhejiang Province.

Geely, the sole privately-owned carmaker in China, Thursday slashed prices of the Haoqing by up to 5,000 yuan (US$604).

The Haoqing now sells for 32,999 yuan (US$3,980), making it the cheapest car produced in China.

This is the second price cut by Geely this year.

In January, the company decreased prices of the Haoqing, Merrie and Ulion by 5,000 yuan (US$604).

A slew of other carmakers, such as Sino-foreign joint ventures Shanghai General Motors, Chang'an Ford, Chang'an Suzuki and Dongfeng Yueda Kia, have also reduced the price on their compact models this year .

"The price weighs most heavily in the compact car segment, so manufacturers have to cut prices to boost sales and deal with red hot competition," said Zhang Xin, an auto analyst from the Guotai & Jun'an Securities Co Ltd.

FAW Xiali, listed in Shenzhen, sold 115,000 cars last year, an increase of 32.6 percent from a year ago. The company runs a car joint venture with Japan's Toyota.

Geely said it aims to double its sales to 160,000 cars this year.

"Manufacturers also hope to clear up their old product stocks to make way for new models and to promote their image among customers through price cuts," Zhang told China Daily.

Carmakers have benefited greatly from their price reductions.

Shanghai General Motors, which cut the Buick Sail's price by 10,000 yuan (US$1,200) last month, said it sold more than 6,000 units of the model in January, up from the average monthly sales of 4,300 units.

Geely said sales last month exceeded the 8,000 mark.

Car prices in China, which are still much higher than those on the international market, will continue to drop this year as a result of rapidly expanding production by manufacturers, the introduction of new models, the nation's tariff cut and higher quotas for car imports, he said.

"The average price will decline by 15 percent this year following an 18 percent cut last year," he said.

The price is forecast to drop to international levels within the next three to five years.

"Almost all companies are cutting prices and vigorously increasing production to control bigger market shares," he said.

"To expand market share is most important for manufacturers at the current development stage," he added.

For example, China's No 1 automaker, FAW, plans to increase its total production to more than 1 million vehicles this year, up from 900,000 units last year.

There are more than 50 new models to be produced in China this year, such as the Toyota Corolla, Peugeot 307, Ford's 2.5-litre Mondeo, the Santana 3000 from Shanghai Volkswagen and the Honda CRV.

"These new models will put pressure on old products as they will take a lot of sales this year," Zhang said.

Under its World Trade Organization obligations, China has cut its tariffs on vehicle imports to 34.2-37.6 percent this year from 38.2-43 percent last year.

The nation will grant a total completed vehicle and components import quota of US$10.5 billion this year, up 15 percent from 2003.

China's total vehicle output surged by more than 30 percent to 4.44 million units last year, including 2.01 million passenger cars.

(China Daily February 6, 2004)

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