General Motors outsold Volkswagen’s main unit in China for the first time in June after the U.S. car maker cut prices, a breakthrough analysts said may rekindle a price war in the world’s fastest-growing major car market.
Volkswagen’s Shanghai venture, long pre-eminent among China’s 120 or so auto makers, fell to third place in June, as it was also overtaken by a tie-up between Japan’s Honda and Hong Kong-listed Denway Motors.
A margin-sapping price war would further pressure foreign car makers, who plan to spend some $13 billion tripling their China capacity to six million cars a year by the end of the decade.
They are already feeling the heat from China’s efforts to cool its racing economy.
Analysts said Volkswagen AG, which hacked prices by up to 11.7 percent in June to match an 11 percent cut by its U.S. rival in May, would now slash prices further to try to win back the top slot in China that it has held for a decade.
The country’s largest car-making entities turned in markedly different performances for June.
GM’s sales in China, expected to eclipse Germany in new car sales to become its number two market worldwide this year, rose nearly five percent to 24,040 vehicles in June from May, spokeswoman Daphne Zheng said.
Across town at Volkswagen’s venture with Shanghai Automotive Industry Corp., sales skidded more than 11 percent to 20,085 cars, a company executive said, dipping below GM’s sales for the first time on a monthly basis.
Sales at Honda’s venture in the southern city of Guangzhou jumped 53 percent to 21,275 cars, up 82.1 percent from June 2003, the venture said on its Web site.
“Volkswagen is bound to cut prices again this year,” said Zhang Xin, analyst at Guotai Junan Securities. “They are still tops... But ultimately sales are driven by pricing.”
The European firm’s venture in Shanghai is the larger of its two manufacturing ventures in China. The Shanghai Daily said on Tuesday that sales from its plant in the northern city of Changchun slumped more than 36 percent to 12,785 cars in June.
The Changchun venture declined to comment.
Including the Changchun operation, Volkswagen sold more cars than GM. But the U.S. auto maker is closing the gap — fast.
Newer models, lower prices
GM’s car market share now stood at 12 percent, it said on Tuesday, from about seven percent at the end of 2002. Volkswagen commands about 34 percent from a high of almost half.
“We’ve always been number two or three in the past,” GM’s Zheng said. “But without seeing the overall sales numbers for June, it’s hard to say much about market share, except that the June ranking is quite encouraging.”
Year-on-year and overall industry figures for the month were not immediately available.
Analysts said the Detroit giant pushed more cars out of Chinese showrooms in June after slashing prices on two core models by up to 11 percent in mid-May. The introduction last year of newer models such as the Buick Excelle also helped.
Price comparisons are difficult. But a Buick Regal and a comparable Volkswagen Passat retail for slightly more than 200,000 yuan ($24,170).
“Price cuts were a reason. GM cut prices in mid-May, while Volkswagen only followed in mid-June,” said Yale Zhang, an analyst at Shanghai-based CSM.
Car prices have fallen in China for years, but discounts are taking on new significance as Beijing tries to slow an economy that grew 9.8 percent in the year through the first quarter, restricting car loans and keeping potential buyers at home.
Car sales in China skidded 19.4 percent in May from April, the second straight monthly fall. Analysts say sales may grow just 20 percent in 2004 after nearly doubling to more than two million units in 2003.
