Reducing prices to deal with inventory and properly recover costs are normal business practices, but these tactics should not turn into price wars, the CAAM said.

CAAM calls for return to normal order in China's auto industry as price war disrupts sector-CnEVPost

(Image credit: CnEVPost)

The price war is one of the most talked-about topics in China's auto industry this month, creating operational challenges for many car companies. Now, an industry association is calling for a return to rationality for all parties to bring order to the market.

The hype about this round of price cuts in China's auto industry should be cooled down as soon as possible so that the industry can return to normal operation and ensure healthy and stable development throughout the year, the China Association of Automobile Manufacturers (CAAM) said in an article posted on its WeChat account today.

In the article, titled "The current round of auto promotions should be treated rationally and the market should return to normal order as soon as possible," the CAAM argues that price wars are not a long-term solution and the auto market should return to normal order as soon as possible.

In the fourth quarter of last year, especially since the Covid outbreak in China in December, the pace of auto production and sales has been seriously affected, the article noted.

The overall sales of China's auto industry dropped significantly in January-February, inventories rose sharply, and automakers saw their operating pressure increase and took various measures to reduce inventories, the article said.

Some local governments have launched pro-consumption policies aimed at boosting local auto consumption and easing difficulties for car companies.

The reasons for this round of short-term promotions are multifaceted, and the companies offer a lot of discounts on models that are mostly long-stocked, old and stagnant inventory cars that have previously been available at considerable discounts, the CAAM said.

However, some marketing in the sales channels exaggerated price reductions to attract attention in order to increase customer acquisition, which is easily misleading, the CAAM said.

The CAAM calls for proper marketing and objective and accurate media reporting.

With the accelerated pace of transformation of the auto industry, traditional car companies are under the dual pressure of maintaining stable operations and making the transformation, with weaker profitability, the CAAM said.

Price cuts to deal with inventory and proper cost recovery are normal business measures, but these means should not turn into price wars, the CAAM said.

Price wars don't last, and value for money is the eternal law of business, according to the article.

Automakers should look at the long term and make more efforts in product technology, quality, service and brand power. Local governments should take the right approach in the process of stabilizing growth and promoting consumption, the article said.

"The government, enterprises and the media should look at this rationally and work together to maintain market order," the CAAM said.

The article also mentioned that China's new energy vehicle (NEV) sales reached about 7 million units last year, and the number is expected to reach 9 million in 2023.

However, internal combustion engine (ICE) vehicles are also accelerating technology upgrades and constantly adapting to changes in market demand, the CAAM said, adding that NEVs and ICE vehicles will coexist for a long time to come and can meet different consumer needs.

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