Cars

Bookkeeping buoys numbers, but price war looms

By Jenny Gu (China Daily)
Updated: 2011-02-28 14:22

Under pressure

BYD's sales are under pressure as its new product plan for 2011 is not as aggressive as before. It has also initiated a price battle by announcing cuts of 4,000 to 15,000 yuan for F0, F3, F3R, G3, F6 and 14 variants.

Most of those models have been in the market for more than three years and the price cuts make sense on big volume sales.

It is a good move financially for BYD, which is expecting to boost sales through price reductions once the second plant in Xi'an comes on stream in 2011.

BYD's move also reflects growing concerns among automakers about a cooling market and potential cutthroat price war.

Related readings:  Emerging markets take sales lead  Nagged by slow sales, BYD slashes prices  China auto sales up 13.8%  Real cost of auto boom

Yet we don't expect all manufacturers will join the fray. For most joint ventures capacity constraint has been a lingering problem in recent years and they are facing the same challenge in 2011. We expect only domestic brands, which often gain market share by offering lower prices, will follow BYD.

Despite an upbeat seasonally adjusted annualized rate in January, we keep our forecast unchanged, with sales projected to increase by around 11 percent to 19 million units, including 13.3 million passenger vehicles and 5.7 million light commercial vehicles this year.

The end of government incentives, rising inflation and higher borrowing costs will have a dampening effect on sales this year.

The author is a senior market analyst at JD Power Consulting (Shanghai) Co Ltd.