Comments: June domestic car market or full-scale price war

The rational return of the overall growth of the auto market may have greater impact on some manufacturers than we think. Under the pressure of a series of chain reactions, such as stagnant terminal sales, inventories and tight capital chains, June will undoubtedly become a “high-risk” month for a possible full-scale price war.

In fact, dealers at the forefront of the market have shouted a sharp increase in operating pressure since March this year. Accustomed to the blowout market in the past two years, many manufacturers have relied on "high-speed growth." Once the market slows down, they feel very uncomfortable. As everyone knows, the current state of the market is not the worst.

In February of this year, BYD took the lead in offering price reductions. The market prices of the five main models, including F0, F3, and F6, were cut across the board (this is the most significant official price adjustment in the past three years). BYD’s price-cutting behavior, which was highly provocative in the market, triggered a preliminary debate at the time about whether or not the car market would experience a price war this year. As a response to BYD’s move, Chery and Geely’s competitors, which belong to the independent brand camp, have expressed their refusal to follow suit. The first reason is that they do not have enough confidence in the market trend, and the second is to avoid falling into the vortex of the price war to get rid of the low price competition.

However, after a few months of continuous market sales continued to decline, especially after the loss of stimulation of its small-displacement vehicle model, as a result, independent car makers felt that the pressure surged. The A-class car market, as their home base, will be the first to sense sales pressure brought about by the market slowdown.

With the sales data of major automobile manufacturers in May coming out, combined with statistics released by the CLUCC in recent days, the market as a whole is showing further decline.

Judging from the data released by the Federation of Travel Unions, domestic sales of narrow passenger cars (excluding micro-passengers) in May were 859,928 vehicles, an increase of only 3.5% year-on-year, and a 4.3% decline from April. Wholesale sales data (including exports) show that the narrow passenger car market increased by 4.3% year-on-year in May, a decrease of 6.2% from the previous month, and cumulative sales from January to May increased by 9.9% year-on-year, of which a considerable portion was last year. Sales of snow stocks at the end of the year (CSC thinks that if the sales volume in Tibet last year is counted as last year's sales, then the auto market is a more negative growth this year). The agency predicts that the domestic auto market will continue to decline until at least the first quarter of 2012. The apparent year-on-year growth of the market will take even longer in April 2012. At the same time, it urges manufacturers to “reduce market expectations”.

We have previously stated that whether the domestic automobile market will experience a price war will depend mainly on the clear direction of the overall trend of the auto market. In February, it was difficult for companies and organizations to truly grasp the main tone of the overall trend of the auto market this year. It was difficult for BYD to raise the “first shot” after a price cut. Wait for the moment. With the terminal market in the next three months falling below the expected range, through the system analysis and forecast of the major institutions and the company's own think-tank, I believe we have already made corresponding deployments.

The first half of June should be the eve of a price war. This kind of judgment is not without reason.

Although some dealers in the two or five months of April and May have launched profit promotion methods with or without support from the OEM, most of them still remain at the dealer level, rather than the official behavior of the entire vehicle manufacturer. We believe that June is the key to manufacturers' impulses in the first half of the year, and some listed companies must also consider the “beautiful” level of data on the statements. Therefore, after a period of time ago, dealers continued to press warehouses, and in June they became the vehicle manufacturers’ digestion. The critical period of these stocks. The pressure of tightening monetary policy to increase the cost of capital can't be underestimated whether it's for a vehicle manufacturer or a distributor. How to convert the products in the garage into cash flow is directly related to the issue of survival.

With the gradual resumption of production of Japanese cars, consumer intensification based on a variety of factors (inflation, rising oil prices, car costs, etc.) after consideration of the selection of coin-to-be-purchased, as well as the increase in inventory and operating costs, are Pressure on manufacturers, price war is imminent.

We still insist that the price war will not be the first choice for corporate competition strategy. However, companies do not need to talk about the discoloration. They should objectively view the advantages and disadvantages of the price war. It is true that a vicious price war will not only destroy the enterprise, but will also affect the functional imbalances of the entire market and even the entire industry. Under the premise of a relatively complete market economy, the price war is one of the most effective means of allocating social resources. The competitive landscape of China’s auto market is far from mature, and product differentiation is not obvious, especially in the low-end market, so the price war cannot be avoided. Within a reasonable range, or benign price competition, domestic enterprises, especially autonomous vehicle companies, can increase their own R&D and management levels, reduce product production costs, and increase production efficiency. To a certain extent, they urge companies to accumulate energy and cultivate their own Core competitiveness.