Chery raises car prices amid higher material costs

CHERY Automobile Co Ltd has become the first domestic car maker to raise prices due to soaring raw material costs this year.

Analysts said compared with joint venture auto makers, domestic car makers developing self-branded vehicles are more vulnerable to recent price hikes in steel and iron ore because they have thin profit margins.

Chery, the nation's fourth largest car maker, added an average 1,000 yuan (US$142.80) to 3,000 yuan on its mainstream products including QQ subcompacts, Tiggo sport utility vehicles and Easter Cross sedans starting this month, according to dealers.

Chery QQ, one of the top 10 best-selling models in China last year, now costs up to 50,000 yuan for a 1.1-liter engine. The 2.0-liter Easter Cross costs up to 122,800 yuan after the three percent price increase.

Huang Zherui, analyst from automotive cnosultancy CSM Asia Corp in Shanghai, said Chery's price increase is unexpected as domestic car makers mainly compete in the lower market segment with low prices.

The price of iron ore has surged 65 percent in the past few months, which caused the cost of steel, which makes up 70 percent of a car, to rise five to 10 percent.

Wang Zhihui, an auto analyst from China International Capital Corporation Limited, said small car models were hit hardest by the surging steel price while the impact was negligible on profitable mid- to high-end cars.

The profit margin of small cars with an engine capacity of about one liter could drop 16.5 percent compared to a 4.3 percent drop for an economy sedan, according to Wang.