A new bout of price battles in China's car market, the second-biggest in the world, has broken out following South Korean carmaker Hyundai Motor Co's aggressive price cuts on its locally-made models last month.

 

Hyundai's joint venture with Beijing Automotive Industry Corp slashed prices of the subcompact Accent, the compact Elantra and mid-sized Sonata by 5,000 to 16,000 yuan to buck a downward trend in its sales this year.

 

Under attack from competition, January-to-August sales at the venture, which also makes the Tucson sports utility vehicle (SUV), plunged 20 percent from a year ago to 146,001 units, ranking eighth in the passenger car sector in China, according to industry data.

 

Hyundai's move has ignited a new round of price wars, which will be "awfully acute" this month, the seasonal peak car sales period in China, analysts said.

 

Hua Xue, chief executive officer of cheshi.com.cn, a Beijing-based portal tracking nationwide car prices, said: "Other carmakers will have to follow suit to lure increasingly sophisticated Chinese buyers."

 

As a result, domestic car prices will tumble by as much as 6.5 percent in December from January, a quicker pace than 5.6 percent last year, he said.

 

Prices in August dropped by 3.6 percent from January due to earlier price contests, he said.

 

According to market intelligence, Shanghai GM, a tie-up between General Motors Corp and SAIC Motor Co, will possibly launch a major price cut for the compact Buick Excelle - its best seller - to fight against the Hyundai venture.

 

Analysts said Shanghai GM, the third-biggest passenger car producer in China, will have to cut prices to achieve its lofty 2007 sales target as its growth this year has slowed sharply.

 

Sales in the first eight months hit 294,600 units, up 13.7 percent. The growth rate was 23 percent last year.

 

Shanghai GM said in the first half that it aimed to sell 480,000 vehicles this year, up from 400,000 units in 2006.

 

The Hyundai venture last month lowered its 2007 sales target from 310,000 units to 250,000 units.

 

A phalanx of other carmakers - such as PSA Peugeot Citroen's tie-up with Dongfeng Motor Corp, and Honda Motor Co's venture with Guangzhou Automobile Corp - are also suffering slower growth and difficulty attaining sales targets this year.

 

Although these carmakers have not announced official price cuts, their dealerships have already offered hefty incentives on plenty of models, such as the Buick LaCrosse, Honda Accord and Citroen C-Triomphe.

 

Yale Zhang, director of Greater China Vehicle Forecasts for US industry consultancy CSM Worldwide (Shanghai) Ltd, said price cuts are a "very swift way" to boost car sales in China where most car customers remain first-time buyers without strong brand loyalty.

 

"They will choose your products if you provide cheaper cars than your rivals. They have already got used to price cuts," Zhang said, adding that compact and mid-sized cars are the two most competitive segments this year.

 

There are plenty of all-new and facelift models on the block during the remainder of this year, which, he said, will force old comparable models to reduce prices to defend their market share.

 

For example, Ford Motor Co's joint venture with Chang'an Motor Corp last month unveiled a 2.3-liter new Mondeo sedan that will go on sale before the end of this year, retailing between 210,000 and 250,000 yuan.

 

Zhang estimates that passenger car sales in China, including sedans, SUVs and multi-purpose vehicles, will reach 5.2 million units, up from 4.1 million units in 2006. From January to August, sales surged by 27.2 percent to 3.37 million units, according to industry data.

 

However, Zhang Xin of Guotai & Jun'an Securities Co, said severe price contests will put cost-cutting pressures on carmakers that are also confronted with rising costs of materials, such as steel.

 

(China Daily October 10, 2007)