| Although Volkswagen has denied the rumour of | | | | path, China will not be immune. |
| "general price hikes in April" for its passenger cars | | | | Despite the bullish tune for car price hikes, there |
| in China, speculations for car price increases in | | | | are also many sceptics. On one hand, due to the |
| China are still rampant. | | | | rising CPI, steel and oil prices, car manufacturing |
| Mr Rao Da, Secretary-General of National | | | | costs are going up, putting tremendous pressure |
| Passenger Car Information Exchange Association, | | | | on automakers in China. On the other hand, the |
| suggested that car price inflection points may | | | | continued declining price trend, technological |
| appear this year or the next. Due to rising raw | | | | advancement and market saturation have been |
| materials and labour costs, it is expected that | | | | reducing car prices again and again. Most |
| cost per car may increase by 1500 to 3000 yuan | | | | consumers are already used to cheaper cars, a |
| (RMB:USD = 7:1) in 2008. Even for upgraded | | | | price hike is something next to unacceptable. |
| models, the cost would still increase due to the | | | | Many auto manufacturers are extremely cautious |
| associated moulding, inspecting and machinery | | | | about price hikes, which could be a landmine for |
| tools. But the fierce competition in China's auto | | | | anyone. The passenger car market of China is |
| market has deterred most auto companies from | | | | now very competitive, but companies are still |
| unilateral price hikes. | | | | expanding their capacities. It is estimated that by |
| Hidden price hikes | | | | 2010, annual car output capacity in China may |
| As apparent price increases may attract | | | | reach 20 million units, almost doubling the |
| resentment from consumers, many | | | | estimated demand in the same period. This |
| manufacturers are now launching new models to | | | | forecasted capacity surplus has placed doubts |
| obtain higher prices. And some upgraded models | | | | over the possibility of any price hikes. |
| are also indirectly lifting prices by adding on extra | | | | Consumer voting with their feet |
| accessories. An industry veteran revealed that | | | | A consumer survey on "whether car prices will |
| many so-called annual upgraded models are | | | | increase" revealed that 71.5% respondents didn't |
| essentially the same as the old models, with only | | | | think there would be any price hikes in 2008, |
| a handful of extras, but much higher prices. In | | | | against 13.5% saying "possible hikes". Among the |
| addition, many auto dealers are also promoting | | | | 3000 respondents, 65.3% said that car price hikes |
| extra accessories to make extra profits. | | | | will definitely affect their purchase plans, against |
| One sales manager from a branded dealer shop | | | | only 20% saying "not affected". |
| revealed that in recent years, as the Chinese auto | | | | Latest data from China Automobile Industry |
| market is becoming more and more competitive, | | | | Association showed that despite car sales volume |
| car prices have been on a downward trend. | | | | growth had slowed down from 25.3% in 2006 to |
| Therefore many automakers and dealers are | | | | 22% in 2007, profits had grown 65% in the same |
| trying every means to recoup the margins, with | | | | period. Total profits had exceeded 100 billion yuan, |
| "compulsory add-ons" being the most notable one. | | | | among which 61 billion yuan were contributed by |
| Dealers are also manipulating some car buyers' | | | | the top 16 leading manufacturers. Profit growth |
| urgency to take delivery of the car, by | | | | for these leaders has exceeded their sales |
| encouraging them to purchase add-ons to speed | | | | growth rates, indicating improved industry |
| up the delivery process. It is reported that | | | | performance. |
| margins on decorative accessories can be as high | | | | It is estimated that China's car sales volume in |
| as 30-40%, and profits from selling decorative | | | | 2008 will reach 10.28 million units, a 17% increase |
| products for five cars are similar to selling one | | | | from last year. Albeit the rising steel and labour |
| whole car. | | | | costs, profit growth for the Chinese auto industry |
| Experts pointed out that even though most | | | | is still expected to be 32% this year. But the |
| automakers are publicly saying that they can | | | | world automotive history has shown that when a |
| absorb the increased manufacturing costs, the | | | | car market enters a mature stage, the whole |
| tight margin of auto manufacturing has made | | | | industry's profitability will inevitably decline. Against |
| them difficult to do so in the short term. As a | | | | this backdrop, any plan to pass cost pressures to |
| result, in order to keep the margin stable, indirect | | | | consumers is probably not feasible. |
| price hikes could be the instant solution. | | | | The survey also revealed that the reason why |
| Price inflection point coming? | | | | more than 34% consumers would not accept |
| "As domestic steel price has increased 500 yuan | | | | price hikes of their favourite car models is |
| per ton, cost of producing a medium size car | | | | because there are alternative models for them to |
| should increase by 1000 yuan correspondingly. And | | | | choose from. Even for those that can afford |
| higher labour costs in China will also push up | | | | price hikes, 90% of them can tolerate a price |
| producers' costs. All these costs are not that | | | | increase of only 5% or less. |
| easy to be absorbed by companies," Mr Rao Da | | | | All signs are pointing to that for car price hikes, |
| considered that as the world is now on an inflation | | | | consumers will eventually vote with their feet. |