Higher Price Competition for China’s Private Auto Brands

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Fitch Ratings

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Chinese proprietary auto brands face increased price competition amid 2017’s weak auto market, as signalled by price cuts in the previous few months to boost retail demand and help dealers destock, says Fitch Ratings. This will lead to further brand polarisation and dampen the profitability of weaker brands.

Chang’an Automobile lowered its retail prices across different models in late-May 2017, followed by JAC Motors’ price promotions for its best-selling models in early June. Great Wall, the largest Chinese sport utility vehicle (SUV) manufacturer, cut the retail prices of various H2/H6 models in early June after launching a CNY1 billion “red packet” promotional campaign in March.

Fitch expects price competition to intensify among proprietary brands in 2017, especially in the rich-margin SUV segment, as auto demand remains subdued. Some small, weak proprietary brands are likely to suffer market share losses and margin compression, while brands with competitive product offerings in the past twelve months, including Geely, Guangzhou Automobile Group’s Trumpchi and SAIC Motor’s Roewe, are likely to outperform in sales growth and retain healthy profitability.

Proprietary automakers have slowed wholesale vehicle deliveries to dealers to ease the latter’s inventory and financial burdens. Chinese proprietary brand dealer inventory levels peaked at 2.5 months in April 2017 and remained high at 1.9 months in May after aggressive destocking. Chang’an Automobile, for example, has voluntarily cut its production and wholesale sales since April to help dealers clear old models before new product launches in 2H17. The company’s wholesale volume declined by 27.6% yoy in April and 25.8% yoy in May.

We believe Chinese automakers have strong incentives to keep dealer inventories under control in 2017 in light of weak demand and new automobile distribution rules that prohibit manufacturers from setting dealer sales targets or pushing inventories to dealers, which come into effect from 1 July 2017.

Naija247news
Naija247newshttps://www.naija247news.com/
Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

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