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How China's price war engulfed foreign automakers
Yang Jian | 2016/8/26

SHANGHAI -- Until recently, foreign automakers were reluctant to cut prices in China, a strategy that Chinese brands routinely use to win market share. 

Backed by high brand recognition and technology, most global brands have made higher profits per vehicle in China than in other markets for a long time. 

But that's changing. Despite a stagnating economy, China's auto sales continue to grow. To sustain that growth this year, foreign carmakers have repeatedly slashed prices.

Even Honda and Toyota, which emphasize profit margins more than their global peers do, are no exception. 

Take the Toyota Yaris. In 2008, the subcompact debuted in China at a starting price of 92,000 yuan ($14,150). Last year, the freshened Yaris was still priced at 87,800 yuan and higher. But this month the redesigned Yaris' starting price was lowered to 69,800 yuan.

Another example is the Honda Greiz compact sedan. Last October, Honda introduced it with a starting price of 79,800 yuan. Now, Chinese shoppers can expect a discount up to 23,900 yuan.

Other mass-market brands also are offering steep discounts. In the first half of this year, per-vehicle discounts on mass-market nameplates averaged 9,303 yuan, up from 7,316 yuan in 2014, according to J.D. Power.

Thanks to heavy discounts, virtually every major foreign mass-market brand has several models selling for less than 80,000 yuan. At such a price, these models are competing head-on with Chinese brands. 

While the mass-market brands seek to win market share with competitively priced products, a price war also is brewing among luxury marques. 

In the first six months, per-vehicle discounts on luxury nameplates in China averaged 33,468 yuan, nearly double the amount in 2014, J.D. Power noted in a report.

A few years ago, luxury-car buyers typically were business owners and senior company executives. But thanks to dramatic price cuts, middle-class families and midlevel managers now can afford compact luxury sedans and crossovers.

All segments of China's car market are price-sensitive, and this year's sales results prove it.

In the first seven months, light-vehicle deliveries rose 11 percent to 12.6 million vehicles. Most analysts agree that the market got a big boost from Beijing's 50 percent reduction of the purchase tax on vehicles with engine sizes of 1.6 liters and smaller.

That tax incentive is due to expire at year end, and China's vehicle sales likely will lose steam. 

If so, the price war among automakers will grow even fiercer. The days when foreign brands could freely jack up prices in China will soon be gone.

Pictured: Yang Jian is managing editor of Automotive News China.

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