May 24, 2023

China car price truce skids off road at first bend

Cars drive on the road during the evening rush hour in Beijing, China, July 1, 2019. Picture taken July 1, 2019. REUTERS/Jason Lee/File Photo - RC2YW1AXBMHX

MELBOURNE, July 10 (Reuters Breakingviews) - So much for an end to big discounts on new vehicles in China. On Saturday the China Association of Auto Manufacturers (CAAM) reversed out of the pledge it had brokered just two days earlier with Tesla (TSLA.O) and 15 domestic carmakers to curb a debilitating price war in which some models were being sold for 20% or more below their sticker price. It leaves plenty of egg on a lot of faces.

In theory, the vaguely worded and non-binding pledge vowing to maintain healthy competition while eschewing “abnormal pricing” appeared to leave enough room for automakers to continue to lure customers – as Tesla did by offering cash rebates to certain buyers immediately after signing the agreement. But it quickly dawned on – or was made clear to – the CAAM that such wording might violate the spirit of China’s anti-monopoly law. Such legal risk ought to be something the association, the 16 manufacturers, and the Ministry of Industry and Information Technology that witnessed the pact would have checked beforehand.

It would have been a hard agreement to stick to anyway, with Volkswagen (VOWG_p.DE) and others refusing to sign it. Now they’re all back facing the same dilemma of whether to imperil profitability, and even in some case longer-term viability, for the chance of a short-term sales boost. (By Antony Currie)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. This piece has been refiled to add a link)

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