Subsidies lead to controversy, how much "moisture" is in the tide of car price cuts

The wave of car price cuts in 2023 is earlier, more fierce, and more controversial than before.

"Citroen C6, C3-XR limited time direct enjoyment: Hubei government and enterprise comprehensive subsidies up to 9,3 yuan" "New car buy one get one free"... Since the beginning of March, when Hubei Province's joint car companies launched new car subsidies, an unprecedented scale of automobile "price reduction tide" has swept almost all car brands in the country.

Is there moisture in the dazzling promotional campaigns? Is it the best time for consumers to buy a car? How much can such subsidies have a pulling effect on stimulating car consumption? How should car companies respond after the "price reduction tide"? Recently, the reporter visited some automobile 4S shops in Wuhan, Hubei Province, trying to find answers to these questions.

The subsidy rules are unclear, and there are risks behind "real fragrance"

"The Citroen C6 is no longer available, if you want it now, you can only pay a deposit to queue, and we will transfer you from other provinces." At the entrance of the Wuhan Jingjing Dongfeng Citroen 4S store, a staff member is busy replying to consumers who come to see the car. Perhaps because there were too many people who came to consult, this 4S store simply put a dozen exhibition cars outside the store, and there were OEM personnel wearing Peugeot-Citroen Auto overalls who temporarily acted as salesmen on site.

"The Citroen C6 transferred from other provinces is a stock car produced from June to December 2021. But don't worry, we will change the oil filter, etc. When the reporter asked whether these inventory vehicles would not be able to meet the latest emission regulations, the staff said that from insurance to the license 6S store will help to get it, there is no need to worry about emissions compliance and other issues.

The reporter learned at the scene that Dongfeng Citroen and Dongfeng Peugeot participated in the subsidy only for models produced in Wuhan. Models produced at Peugeot-Citroen Automobile Chengdu such as Citroen Versailles and Peugeot 5008 cannot enjoy any subsidies even if they are of the same brand.

In addition, if you want to enjoy this subsidy in Wuhan, the car buyer must be registered in Hubei Province, or meet a certain social security payment period, and the new car must be on the license plate of Wuhan City.

The reporter then visited the 4S stores of BMW, Mercedes-Benz, Volvo, FAW Toyota and other brands in Wuhan, and found that the specific standards of this round of subsidies are not clear. The amount of subsidy is not obviously related to the size and displacement of the model.

"Now the new Volvo car in Wuhan is basically the lowest price in the country." A salesman at a luxury car brand 4S store in Wuhan told reporters that as of the end of March, how much the government can give the subsidy may depend on the results of the manufacturer's own negotiations.

However, the China Automobile Dealers Association received feedback from members that the subsidy activity in Wuhan is mainly aimed at locally produced brands such as Dongfeng Fengshen, Dongfeng Peugeot and Dongfeng Citroen, with preferential amounts ranging from 5000,9 yuan to <>,<> yuan.

In addition to the lack of clarity in the subsidy standard, the subsidy method also hides moisture.

Taking the Citroen C9 6.1T Comfort Edition, which is known as a "comprehensive subsidy of 8,248988 yuan", as an example, consumers need to pay the full amount of 226800 yuan (including the new car price of 16088,600 yuan, purchase tax of 5500,9 yuan, payment of <> yuan and insurance of <>,<> yuan). After all the car purchase procedures are completed, the manufacturer will return the "comprehensive subsidy" of <>,<> yuan to the consumer's account.

This means that the so-called "direct drop of 9,<> yuan" is to buy at the original price of the manufacturer's guidance price, and then subsidize consumers. In fact, due to the increasingly fierce competition in the automobile consumer market in recent years, almost no new cars will be sold at the manufacturer's guide price, and dealers will generally adjust the price in real time according to the best-selling degree of a new car and market conditions.

The reporter learned from dealers in Beijing, Chongqing and other places that before the "price reduction tide", the price of the Citroen C6 comfort version was generally 16,18-14,22 yuan, and some regions also dropped to about 68,9 yuan, which has long been much lower than the manufacturer's guidance price of 4,<> yuan. That is to say, the "<>,<> yuan comprehensive subsidy" that has aroused heated discussions among many netizens this time may be a question mark on whether it is as "rare opportunity" as the <>S store said.

In addition, because it is calculated at the opening fare of 18,18 yuan, consumers actually need to pay more purchase tax and insurance.

"Whether it is a 'huge comprehensive discount' that looks like a shocking eyeglass, or a blood-pumping 'guide price drop', consumers should take a calm view, because the actual discount you enjoy may not be exactly the same as what the manufacturer advertises." Bai De, an independent car commentator, said that it should be a good thing for manufacturers to make profits and stimulate car consumption, but because the car sales rules are more complicated and dealers offer a variety of prices, it is still necessary to be cautious about car price reductions.

"Frankly speaking, the behavior of 4S stores to modify prices is often more hidden, and it is often difficult to detect price changes if consumers do not consciously track the same product continuously." He reminded that on the one hand, consumers should keep their eyes open and calculate the original price of the comprehensive guidance price, taxes, car maintenance costs, etc.; On the other hand, automobile enterprises and auto dealers should abide by the principle of honest management, and do not play the trick of "first increase prices and then reduce prices" as some e-commerce platforms have done in previous years, exaggerating the price reduction range to consumers.

Baide reminded that the Price Law and other relevant laws have long clearly stipulated that business operators must not use false or misleading price means to trick consumers or other business operators into trading with them.

The effectiveness of "named subsidies" is questionable

"Generally speaking, there are common means to encourage automobile consumption such as issuing consumption coupons, reducing taxes and reducing taxes, and suddenly introducing a subsidy policy with unclear rules like this is neither common nor difficult to say." Li Ziliang, partner of Alanlio Consulting, believes that unlike car companies spontaneously carrying out price adjustments, the "subsidy + price reduction" model that was blown up in Wuhan, Hubei Province in March will inevitably cause controversy.

He reminded that on the one hand, for enterprises, excessive use of price reduction gimmicks will consume the trust of users, and they must not fantasize about only relying on "price wars" to grasp the strategic initiative; On the other hand, selective subsidies for local car companies are not conducive to the healthy development of the industry and the construction of a unified national market.

According to statistics from the China Automobile Dealers Association, from March 3 to March 1, the retail sales of passenger cars were 3,12 units, down 41% year-on-year and 4% from the same period last month. Since the beginning of this year, the cumulative retail sales of passenger cars nationwide have reached 17.11 million, down 309% from last year. There are also market research shows that in addition to Wuhan, the flow of 4S stores across the country has increased significantly, but the transaction volume has decreased significantly, and some consumers have begun to hold coins for purchase, waiting for a larger price reduction subsidy policy.

"Once consumers come to the store to actually understand, they may be disappointed and even hold coins for purchase." Some industry experts believe that in previous years, most of the price wars carried out by car companies would be concentrated in March and April, and concentrated promotions were carried out before new cars were launched, but this year such a situation is very rare.

Wang Du, assistant president of the China Automobile Dealers Association, believes that it is unfair to subsidize only locally produced car brands. "This selective approach has obvious local protection overtones, is unfair to non-locally produced car brands, and if left unchecked, it will cause great damage to the sustainable and healthy development of the automotive industry."

On March 3, the "Chengdu Release" announced that Chengdu Longquanyi District launched a "production and marketing linkage" automobile consumption activity, which will distribute subsidies with a total amount of 20 million yuan, and the cumulative subsidy for bicycles will be up to 1,15 yuan. It is worth noting that the subsidy is applicable to "models declared by vehicle manufacturers producing and operating in Chengdu".

"Recently, local governments have successively introduced promotion policies. If they all follow Wuhan and only subsidize the automobile brands produced in the local area, this will inevitably cause the segmentation of the automobile market and the chaos of the market order, which is contrary to the spirit of building a unified national market. The China Automobile Dealers Association issued a special document calling for subsidies not to be selective or targeted, but should be from the perspective of sustainable development of the automobile market, and introduce inclusive automobile consumption subsidy policies to benefit consumers.

Will the tide of price cuts be followed by a tide of elimination?

If Hubei Wuhan is the "eye of the storm" in this price reduction tide, then Dongfeng Motor Group Co., Ltd. (hereinafter referred to as "Dongfeng Company") is undoubtedly the "biggest beneficiary" of this comprehensive subsidy.

Statistics show that Dongfeng's annual sales have declined for six consecutive years, from a peak of 6,2016,427 units in 67 to 2022,246,45 units in 42, a drop of more than <>%.

From January to February this year, the cumulative sales volume of Dongfeng Motor Group Co., Ltd. (a holding subsidiary of Dongfeng Corporation listed in Hong Kong, which supervises major passenger car companies such as Dongfeng Passenger Vehicle and Peugeot-Citroen Automobile) was 1 units, down 2.262285% year-on-year. Therefore, some analysts believe that this wave of large subsidies and price cuts is the "timely rain" that Dongfeng Company has been waiting for.

However, in Li Ziliang's view, even if the subsidy effect is remarkable, relevant enterprises need to seriously review past strategic decisions and business ideas.

He believes that in the past 10 years, the keywords of China's auto market have been "strengthening independent brands" and "promoting new energy vehicles", and all Chinese car companies that have made progress in these two fields have basically entered the fast lane of development. "For example, by revitalizing the Hongqi brand, China FAW has successfully created a model for the high-end of national brand cars. Another example is BYD, which has been rising all the way up in the past two years with the help of the continuous hot sales of new energy vehicles, and both sales and market value have reached a new high. ”

He bluntly told reporters that in contrast, Dongfeng has not been able to catch up with the "Dongfeng" of electrification and independent brands. In particular, the lack of investment in electrification and intelligence of French vehicles has led to difficulties in the development of joint ventures such as Peugeot-Citroen Automobile in the context of declining competitiveness in the Chinese market.

"Whether it's subsidies or price cuts, it can only solve a temporary need, and it is by no means a long-term solution." Baide believes that the sudden and sharp price reduction of new cars will cause damage to the brand and bury hidden dangers for future development.

On the one hand, this will cause the price of second-hand cars to plunge sharply, seriously damaging the interests of old car owners and market confidence, "once the price is beaten, it is difficult to return to the original level"; On the other hand, the automotive industry chain is very long, whether it is parts companies, dealers, or vehicle companies need reasonable profit margins.

Baide said that if sales fluctuate sharply due to interference outside the market, it is difficult for upstream and downstream companies to cooperate with vehicle companies to adjust production. "Upstream and downstream enterprises can't hire more people as soon as they subsidize, and lay off employees as soon as the original price is restored."

Li Ziliang analyzed that if the "price reduction tide" of new cars is so tragic that some car companies cannot make normal profits, then the knockout competition in the auto market will accelerate, and those weak brands that have neither technical advantages nor can cope with price wars may be doomed. "The more the bayonet is seen in the price war, the less the market can accommodate weak brands."

Photo by Xu Yajie, reporter of China Youth Daily Source: China Youth Daily

2023-03-23 Version 12