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Autos: Vehicles to get pricier?

(China Daily)
Updated: 2008-06-25 09:50

Chery's A5 at 2008 Beijing Auto Show. To increase or not to increase prices has been the most frequently asked question by marketing managers of auto manufacturers in China recently.[chinadaily.com.cn]

To increase or not to increase prices has been the most frequently asked question by marketing managers of auto manufacturers in China recently.

Auto consumers worry that soaring iron and steel prices may have a huge impact on raw material costs in the auto industry and in turn have a knock-on-affect on the price of the end product.

Baosteel said on June 23 that it agreed with Australian mining group Rio Tinto on a price increase of up to 96.5 percent for iron ore in 2008, nearly double that of 2007.

Analysts believe the price rise may influence the economy car market more than other segments, and automakers should find alternatives to easing the cost pressure other than increasing prices.

"The price of steel plates for auto production in China has increased by 800 yuan per ton this year, which adds an extra 100 million yuan sourcing cost for Chang'an Motor Corp, with a 300 yuan in extra cost for a single automobile," said Zhu Huarong, vice-president of the auto group.

"Apart from the direct effect of steel plates, the price rise of rubber and plastics, which will definitely increase the cost of auto parts, will also have an impact on the price of the automobiles. It wouldn't be a surprise if the cost rises by 1,500 to 3,000 yuan per unit," he added.

However, according to a survey conducted by Sinotrust, a leading domestic auto research firm, 32.2 percent of consumers surveyed refused to accept auto price rises due to the nature of the passenger car market, which boasts more than 170 models. Some 29.5 percent believed that even if prices rise in 2008, they would eventually drop after the year.

Therefore, rising costs would cause a dilemma for the local manufacturers who produce economy cars with low profit on whether or not to increase prices, analysts said .

This April, Chery Automobile Co raised the prices of its models by 2,000 to 3,000 yuan. However, after the price adjustment, especially for its QQ subcompact, sales declined sharply, said a Chery dealership.