Unsold cars are likely to be seen more and more within inventories and dealer lots. (Photo : Modern Car Picture)
Automotive sales in China have slowed down. Car manufacturers must brace themselves for the maturing market and lower percentage gains, and should consider lowering retail values. Some brands have already trimmed down their prices, including Volkswagen, Honda Motor Co., Ford Motor Co. and GM.
China's "new normal" is a phrase used by Chinese leaders to account for slowing economic growth. The decline is typical in emerging markets that are reaching maturity.
"We were really spoiled the last few years by the growth rates," said BMW CEO Norbert Reithofer. "But we saw in 2014 that they were increasingly on the decline, and above all, it was no longer possible to achieve the kind of contribution margins we had three or four years ago."
"Through the price adjustment, the selected products will consolidate their leading position in different segments, making them more attracting to consumers," said a GM spokeswoman in China.
The premium market leader in China, Audi reported its March sales only rose 1.5 percent. Volkswagen was not able to increase sales in the country for the fifth month out of the past six.
All automakers are expected to be adversely affected, but German groups are most at risk. Car sales in China halted to 9.9-percent gain and 19.7 million passenger vehicles in 2014. The Chinese economy was recorded at its most sluggish in a quarter century.
This was partly the result of budget-conscious SUVs and minivans by cheaper Chinese brands. The China Association of Automobile Manufacturers predicts these passenger vehicle sales to increase 8 percent to 21.3 million units this year.
This may be good news for citizens wanting to purchase vehicles by global automakers, but the willingness to compromise for market share protection may hurt the industry.
"Over time we remain convinced that these price cuts will spread across the industry, impacting pricing and profitability for both the manufacturers and their dealers," said Robin Zhu of Berstein Research.
Unsold cars are likely to be seen more and more within inventories and dealer lots.
