In China’s auto market, worries grow that cashback deals and gifts presage damaging price warPosted On: May 25, 2020 By : AutoLife Team
Cashback offers, up to 10 free oil changes, generous prepaid gasoline cards — these are just some of the giveaways China’s auto dealerships are using to woo customers out and about after spending much of February and March in lockdown.
For the most part, they are getting the job done.
Cui Peng, a Geely sales manager in the eastern city of Hangzhou, says unit sales at his dealership jumped 30 percent in April from March and they are hoping for 25 percent growth in May.
That is partly due to delayed demand after China shut down to contain the coronavirus. But it is also thanks to an offer of six free engine oil changes, worth around 3,000 yuan ($420), for customers who buy models such as the Binyue sport utility vehicle.
“Although car retail prices are not much different from usual, customers get to enjoy these complimentary services that do not impact our budget much in the short term,” he said.
In the nearby city of Ningbo, a Toyota Motor Corp dealership offering 10 free oil changes saw April vehicle sales return to pre-virus levels and is aiming for sales in May to climb 10 percent month-on-month, its marketing manager Chen Xiaotian told Reuters.
Even some luxury brands were offering deals, with one Lexus store in Hangzhou enticing customers with thousands of yuan in cashbacks.
Visits and phone calls by Reuters to dozens of dealerships in the world’s biggest auto market showed most have notched up double-digit percentage jumps in unit sales for April compared to March and many expect May sales to grow at least another 10 percent.
Their efforts helped China log its first positive growth in vehicle sales in nearly two years, up 4.4 percent in April from the same month a year earlier.
But the industry remains deeply worried. Any momentum from demand that was locked up in February and March is expected to peter out by the end of May. After that, the outlook for consumer spending is bleak as the coronavirus pandemic continues to hammer the global economy, including China’s exports.
Moreover, industry executives believe the generous deals currently being offered to customers are priming the market for a return to price wars.
Feng Xingya, general manager of state-owned automaker GAC which has partnerships with Toyota and Honda Motor Co, believes a bruising price war is on the cards.
“When there is not much demand amid a pickup in production, price competition will obviously increase,” he told an investor conference in April, adding GAC “cannot be afraid of or refuse to enter any price war.”
Slipping back into price war mode would be easy enough in a crowded market where pandemic-hit automakers are desperate to gain what sales they can.
The industry has already been there twice in the recent past. In 2018, sticker prices took a hit as China’s auto market began to weaken after two decades of strong growth while in mid-2019, dealers offered big incentives after the chaotic implementation of new emissions standards.
“Offering gifts and cashbacks suggests a lack of substantial customer demand,” said Alan Kang, a senior LMC Automotive analyst, adding more brands could offer incentives across more segments to maintain market share.
Kang believes China auto sales will be either flat or show slight growth in the second half of this year.
Dealers noted customers had recently become far more price sensitive.
“We are repeatedly asked by customers about whether Hangzhou will roll out policies to support car demand such as subsidies,” said Avery Wu, marketing manager at a Hangzhou-based Volkswagen dealership.
She added some customers were holding off on purchases in the belief that such subsidies will be forthcoming. (REUTERS)