In a move aimed at reorganizing China’s huge auto market, China’s regulators have issued new laws prohibiting the sale of cars for less than their actual value. This step comes in an attempt to stop the fierce price war that has continued for years and negatively affected the stability of the industry.
“The end of selling at a loss”: Auto companies in China have long relied on aggressive pricing strategies, sometimes selling cars at a loss to achieve greater market share and accelerate growth.
But the new rules, issued by the Chinese Market Regulatory Authority, clearly prohibit this method, with a broad definition of cost that includes production costs, administrative and financial expenses, and marketing and distribution costs. By this definition, Beijing closed an outlet that allowed companies to achieve rapid growth even at the cost of losses.
Protecting competition and preventing manipulation: The decision was not limited to preventing selling below cost, but also included preventing “price manipulation between manufacturers and suppliers.” The decision also included preventing forced discount programs that force agents to sell at a loss, and limiting practices that exclude smaller competitors.
Who wins and who loses? During the price war, large companies were able to withstand and even benefit from the competition, led by “BYD,” along with “Tesla,” which benefited from the competitive price environment. In contrast, SMEs have faced significant financial pressures, with shrinking profit margins and rising operating costs.
Are prices rising now? Analysts expect the new rules could stabilize prices after years of deep cuts, improve profit margins for manufacturers, and slow a major expansion in production. But at the same time, the market may witness a gradual rise in car prices, especially in the low-priced segments that were most affected by the price war.
Is the war really over? Despite the stringency of the rules, experts do not rule out that competition will return in new ways, such as offering technical advantages and smart services instead of lowering prices, and attractive financing plans for consumers. New methods of competition may include software updates and subscription services to enhance value.
The question remains: Has Beijing succeeded in ending the price war, or will competition return in a different form?
