BYD to lure in market by slashing prices, will it work?

Gasgoo.com (Shanghai February 18) - Although announcing that it was looking to embark on steady growth and healthy development in the new year, Chinese own brand BYD seem unable to let go of its aggressive sales strategy, with the manufacturer to slash prices of five of its best selling vehicles.

In an interview with China Business News, sources within the Shenzhen-based manufacturer said that they were only responding to increasing market pressure, and that by decreasing costs the manufacturer would not only expand sales share but also gain better feedback from customers.

With the Chinese New Year having just passed and no clear signal yet of what state the market is in, BYD's decision to cut prices is seen by many as the opening salvo in a new automobile sales war.

Attacking first

Units to be marked down include BYD's top-selling F0, F3, F6, G3 and F3R models, with the average drop in prices to be around 15,000 yuan ($2,281.76) per model. In the past, the manufacturer would decrease prices on luxury versions of its models. What separates this markdown from the rest is that this time sales will cover all model variants, making this promotion a first for the company.

BYD stated that it hopes that the markdown will help push G3 and F6 sales to over 10,000, placing them alongside the company's top-selling F3 compact and F0 subcompact, which saw 2010 sales of 26,000 and 15,000 units respectively.

Industry expert Zhong Shi believes that BYD is lowering prices partly to make up for its sales failure last year. He said that since the manufacturer is falling behind its rivals, they have no choice but to make the first move, and that there was no better time than with the holiday season having just come to a close.

BYD's decision to cut prices of key cars also won't negatively affect the performance of any new models, Mr. Zhong added. The manufacturer is hoping to expand its catalogue with three upcoming models currently in the making: the S6 SUV, G6 luxury sedan and the G3R hatchback. Since the cars covered in the sale are relatively mature in their respective segments, there isn't much danger that BYD's profit margin for its forthcoming additions would be significantly cut.

An unnamed Chengdu BYD dealer said that he believed the price drop would help increase consumer interest, as well as aid in jump-starting a very cold automobile market. Additionally, the fact that the sale is being officially announced means that dealers will not see large reductions in their potential revenue.

BYD saw a halt in its growth last year when dozens of dealers across the country made the decision to leave the company. The manufacturer was eventually forced to modify its 2010 sales target to 600,000 vehicles, which it fell short of by about 80,000. Compared with 2009, when BYD's sales volume nearly tripled, last year was very disheartening to say the least. Furthermore, only 52,054 BYDs were bought last month, a decrease of 15% from January 2010.

@@page@@A receptive market?

With the phasing out of various preferential purchase policies, the mood across the auto industry is 'cautiously optimistic', with slow growth of 10-15 percent expected. The question now is whether or not BYD's sales gambit will reinvigorate the market, and if any of the manufacturer's rivals will follow suit.

Mr. Zhong believes that although the decision will not affect the market as a whole, it may cause a few of BYD's direct own brand rivals to retaliate.

However, whether or not they will adapt similar price cuts will depends on BYD's sales. Tang Si, marketing director for FAW Haima, said that for the moment they are not considering launching a similar promotion, and will instead focus on improving product quality and technology. Geely expressed a similar attitude, with the brand's Director for Public Relations Yang Xueliang saying that Geely will not engage in a price war. Mr. Yang said that while such methods may bring temporary benefits to a company, they do not provide any long-term gain.

However, one Geely dealer revealed his fears, saying that BYD's promotion would definitely put some pressure on them. Own brands rely on sales of automobiles under the 100,000 yuan ($15,212) mark, and buyers in this segment tend to be extremely sensitive to price changes.

With the BAIC's resurgence last year, almost all own brands found themselves falling a place in the sales rankings. Adding a bleak forecast for the auto market this year and increasing competition from joint ventures, still-maturing own brands are coming under mounting pressure to raise sales. Whether or not cutting prices will allow BYD to triumph against the odds remains to be seen.