After spending the whole of February and March in lockdown, China’s auto dealerships are now offering attractive cashback offers, up to 10 free oil changes, and generous prepaid gasoline cards to woo customers out and about.
And even though they are getting the job done, the industry remains worried that any momentum from demand that was locked up in February and March is expected to diminish 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.