General Motors (GM, Financial) has had to slash prices of various models it sells in China to increase the sales volume in the Asian economy. Other automakers including Volkswagen (VLKAY, Financial), Ford (F, Financial) and BMW (BAMXF, Financial) have undertaken the same step to sustain profitability and support their operations in the world’s largest auto market.
As far as General Motors is concerned, it has cut prices on 40 models. Prices cuts have been as high as 53,900 Yuan, which translates to around $8,700. What is General Motors’ strategy to spur demand in its lucrative international market? Let’s take a brief look at what the automaker and its competitors are doing to trigger healthy sales growth in China.
Top Detroit automaker slashes prices
General Motors, in collaboration with its Chinese joint ventures, saw sales dip 0.4% in April as demand for its prime brands plunged drastically. During the month, Chevrolet deliveries were down 5.6%, while Buick deliveries saw a steeper fall 8.5%. Tumbling sales of Wuling, Buick and Chevrolet brands that witnessed sales decline of 5.1%, 8.5% and 5.6%, respectively, in April was the prime reason for the soft numbers.
Sensing the slowing demand, General Motors has slashed prices of various models from Buick, Chevrolet and Cadillac brands. The automaker lowered the prices on some of the Chevy Captiva SUVs by around 20% or 53,900 Yuan. The company said that the model is aging and is higher priced than competiting models such as the Nissan (NSANY) Xtrail.
A GM spokeswoman in China said, "through the price adjustment, the selected products will consolidate their leading position in different segments, making them more attractive to consumers."
Other automakers also cut prices to cope with the current lull
Stunted economic growth and sluggish demand in China has given automakers no other choice but to slash prices. Ford has slashed prices on different models. Volkswagen has started offering attractive discounts on its popular vehicles to lure buyers.
Ford has lowered the price of the Explorer SUV by 40,000 Yuan, which is more than 8% of its original price. Volkswagen, which operates in the country in collaboration with SAIC and China FAW Group Corp., is offering eye-catching discounts. Besides, the German heavyweight is also providing interest-free loans and dealer effectiveness to increase the sales of its brand models. Volkswagen’s joint venture partner Shanghai Volkswagen, made a series of price cuts to cope with slower auto sales. It reduced as much as 10,000 Yuans for models including the newly launched midsize Lamando Sedan.
Honda’s (HMC, Financial) joint collaborator in China slashed the price of its popular SUV, the CR-V by 8,000 Yuan the previous month. Luxury carmaker, BMW is making sure that its dealers aren’t overstocked as this will ultimately lead to higher inventory cost. The company’s China Chief Karsten Engel said "we're adapting to the situation to make sure dealers are not overstocked…it's a little bit of a trend downwards. This is the new normal and we have to accept this and we have to adapt to this."
A diminutive economic growth in China is hurting the foreign automakers. Chinese shoppers have grown more conscious. Head of Shanghai-based consulting agency Automotive Foresight, Yale Zhang said that the Chinese population is increasingly getting aware "that they are not getting a fair price on a given car, compared to their counterparts in the U.S. and elsewhere.” This puts foreign automakers in a tough spot. How will the global giants deal with the present scenario is a food for thought. Will foreign brands be able to contend with indigenous rivals in this Asian country? All this remains to be seen.
