Global carmakers converge on China for the Shanghai auto show this week, with the industry bracing for a sharp sales slowdown and potential price war as competition stiffens in the world’s biggest car market.
Manufacturers have reaped a windfall as the fast-expanding Chinese middle class hits the road, but clouds loom as Volkswagen, Toyota, GM, and other top nameplates pitch their latest models starting this Wednesday at China’s biggest auto showcase.
Passenger-vehicle sales have nearly quintupled over the past decade and logged another stellar performance in 2016, surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.
But volume was skewed upward in 2016 by a government purchase incentive. As China’s decades-long economic boom loses lift, sales growth will essentially be flat this year and could even shrink in 2018 for the first time in memory, consultancy IHS Markit said last week.
In a boon for consumers, IHS Markit said there is already “a major price war descending on the market” as manufacturers and dealers slash prices to move growing stock.
“The threat now for international automakers is that if local players begin cutting prices … there will be a rampant price war across the market as automakers compete to attract new car buyers,” it said.
Such troubles must be kept in perspective: China is still El Dorado for carmakers.
Last year’s sales set a 26th straight annual high-water mark, handily beating the record 17.55 million cars sold in the United States, which China zoomed past eight years ago to become the planet’s top market.
But sales were boosted by the government’s halving of a 10-percent purchase tax on small-engine cars in late 2015. That tax has been raised to 7.5 percent this year and will be restored to 10 percent in 2018, with an expected dampening effect on sales.