Volkswagen joins China price war as new emissions rule looms

BEIJING (Reuters) – SAIC Volkswagen (ETR:) Automotive Co is offering 3.7 billion yuan ($537 million) in cash subsidies for car purchases in China, joining more than 40 brands in slashing prices ahead of a change in emissions rules in the world’s largest auto market.

The joint venture between China’s SAIC Motor Corp Ltd and Germany’s Volkswagen AG (OTC:) is offering 15,000 yuan to 50,000 yuan in subsidies until April 30 for its full lineup, which includes the Teramont, Lavida and Phideon models, SAIC-VW said on its WeChat account late on Thursday.

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

Chinese passenger vehicle sales fell 20% in January-February, industry data showed, even as some manufacturers offered reduced prices to stimulate demand.

Sales of new energy vehicles, which include all-battery and plug-in battery-petrol hybrid vehicles, grew faster than the overall market, accounting for over 30% in February. In the same month, Chinese electric vehicle maker BYD Co (OTC:) Ltd outsold Volkswagen-branded cars for the second month in four.

Government plans for a stricter auto emissions standard effective July 1 has added pressure to automakers and dealers to clear inventories of vehicles that do not meet the standard, Fitch Ratings analysts said in a client note on Thursday.

“There is no other way to describe what is happening other than a catastrophic decline in performance of multi-national ICE (NYSE:)(internal combustion engine) brands,” said Shanghai-based Bill Russo of consultancy Automobility.

The price war is likely to accelerate consolidation of the fragmented local auto industry which has over 130 passenger car manufacturers, state-owned newspaper Economic Daily said in a commentary on Friday.

But it could also hurt profitability and innovation and stall development of the overall sector, which is a pillar of the economy, the newspaper said.

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

($1 = 6.8923 renminbi)