Shanghai GM, the car venture between Shanghai Automotive Industry Corp (SAIC) and General Motors, yesterday cut prices of its products by as much as 11 percent, a move that could ignite a price war.

 

The company, which became the top Sino-foreign car venture in China last year, said the price of its Buick Regal sedans will be lowered by 20,000-26,000 yuan (US$2,460-US$3,210).

 

It also slashed prices for its 2.0-litre Chevrolet Epica sedans by 16,000-18,000 yuan (US$1,980-US$2,220).

 

Shanghai GM said its sales climbed by 29 percent to 325,000 vehicles last year compared to 2004. This helped it outstrip Volkswagen's car venture in Shanghai, the former market leader.

 

"It (Shanghai GM) is taking pr-emptive price measures to deal with fierce competition in the large-sized car segment this year," said Yale Zhang, a Shanghai-based analyst with CSM Worldwide Corp, the US auto industry consultancy.

 

"The segment will account for major growth of China's car market this year with new competitive entrants and price cuts of existing models. We will see lots of price cuts in the segmentduring the first half of this year."

 

Toyota Motor's Camry, to be produced in South China's Guangdong Province in May, is widely seen as a tough competitor in what will be the most fiercely contested area of the market, the segment.

 

The Japanese car maker's venture with Guangzhou Automobile Group said that it planned to make at least 50,000 Camry sedans in 2006.

 

Shanghai GM said the markdown of the Buick Regal was to make room for a new Buick high-end sedan, to be launched in the first quarter of this year.

 

The company will also launch a Buick Excelle station wagon and a Chevrolet Lova compact car in the same period, it said.

 

Hua Xue, chief executive officer of cheshi.com.cn, the Beijing-based website that sells cars online, predicted that prices of made-in-China cars would continue to tumble by some 5 percent this year as a result of market competition and excessive vehicle production.

 

Total production capacity in China now stands at 8 million units a year, but only three-quarters of that capacity is used, according to official statistics.

 

Analysts say a price war in China's car market will continue to erode profits.

 

Zhang Xin, with Guotai & Jun'an Securities Co Ltd, said profits from this sector in China would shrink by about 30 percent this year compared to last year.

 

Statistics from the China Association of Automobile Manufacturers showed that the completed vehicle sector reported 17.4 billion yuan (US$2.1 billion) in profits during the first 10 months of last year, down 49 percent from a year ago.

 

Jia Xinguang, from China Automotive Industry Consulting and Development Corp, said Shanghai GM's performance in China will have an influence on whether GM can maintain itself as the world's biggest automaker in the face of competition from Toyota.

 

"The Chinese auto market has the biggest growth potential for both GM and Toyota. It is increasingly affecting their global race," Jia said.

 

GM, which is losing market share to Toyota and other Asian rivals in the North American market, has not forecast its output for this year. It predicted last month that it would make 9.1 million vehicles in 2005.

 

Toyota announced last month that it plans to produce 9.06 million vehicles globally this year, up from 8.25 million units last year.

 

In China, GM has not revealed its total full-year sales for 2005. During the first three quarters of last year, the struggling US automaker sold more than 472,000 vehicles in China, up 27.8 percent from a year earlier.

 

Shanghai GM now has three plants: in Shanghai, Shandong Province and Liaoning Province. They have a combined production capacity of 480,000 vehicles a year. GM is also marketing imported Cadillac and Saab vehicles.

 

"In 2006, we hope to maintain the growth momentum we gained last year," said an official from Shanghai GM.

 

GM also has a joint venture with SAIC and Wuling Motor, a local vehicle maker in South China's Guangxi Zhuang Autonomous Region. The venture mainly makes Wuling-branded mini vans with an annual capacity of more than 200,000 units.

 

Toyota expects its sales to surge by 54 percent to 179,000 vehicles last year from 2004. It is expected to continue to expand rapidly in 2006, according to Yoshimi Inaba, the company's executive vice-president.

 

Officials from Toyota's China operations said that the company also aims to increase sales of its vehicles produced with China's First Automotive Works Corp to 200,000 units this year and 300,000 units in 2007, from 150,000 units last year.

 

Total sales of made-in-China vehicles are forecast to grow by 12 percent to 5.6 million units this year, including 3 million cars.

 

(China Daily January 4, 2006)