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Volkswagen joins China price war as new emissions rule looms

SAIC Volkswagen Automotive Co is offering 3.7 billion yuan (USD 537 million) in cash subsidies for car purchases in China, joining more than 40 brands in slashing prices ahead of emissions rule changes in the world's largest auto market.

SAIC-VW said on its WeChat account that the joint venture between China's SAIC Motor Corp. Ltd. and Germany's Volkswagen AG is offering subsidies of between 15,000 yuan and 50,000 yuan until April 30 for its full lineup, which includes Teramont models, Lavida and Phideon models.

Guangzhou Automobile Group, the Chinese partner of Honda Motor Co. Ltd. and Toyota Motor Corp., also offered subsidies running from March 15 to March 31.

Industry data showed Chinese passenger car sales fell 20% in the January-February period, even as some manufacturers offered discounted prices to stimulate demand.

New energy vehicle sales, which include plug-in hybrid, battery and petrol vehicles, grew faster than the overall market, accounting for more than 30% in February. In the same month, Chinese electric car maker BYD outsold Volkswagen-brand cars for the second month in four.

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Fitch Ratings analysts said in a note to clients on Thursday that the government's plans to set a stricter car emissions standard from July 1 have increased pressure on automakers and dealers to settle the inventories of vehicles that do not meet the standard.

"There is no other way to describe what is happening other than the catastrophic decline in performance of multinational internal combustion engine brands," said Shanghai-based Bill Russo of consultancy Automobility.

The state-owned Economic Daily newspaper said in a commentary on Friday that the price war is likely to accelerate consolidation in the country's fragmented auto industry of more than 130 passenger car makers.

The newspaper said this could also harm profitability and innovation and disrupt the development of the sector as a whole, which is one of the pillars of the economy.

Local governments have been supplementing incentives to revive demand for cars produced by local automakers. The central province of Hubei and state-backed Dongfeng Motor Group Co Ltd have offered a joint subsidy of up to 90,000 yuan, or 40% of the list price, for the entry-level Citroen C6 sedan produced by their joint venture with Stellantis NV.

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