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Who would have thought that BBA would be entangled in whether to follow the price war? They participated in it out of helplessness before, and now they withdraw from it out of helplessness. However, selling cars at prices far below cost is ultimately unsustainable, and this chaotic "blood war" will eventually come to an end.

Text丨Zhijia.com Jinshan
Editor | Langlang Mountain and Mingzhi Mountain

Since Tesla cut prices on New Year’s Day 2023, is the price war that has lasted for more than a year and a half coming to an end?

Now various signs show that both joint venture brands and domestic brands have shown signs of fatigue in price wars.

Within the domestic brands, criticism of BYD for intensifying the price war is growing louder and louder.

What really reversed the perception that this price war would continue was BMW.

It is not the time to draw conclusions as to whether this counter-trend price increase is just a brief interlude or will eventually end the bloody battle of decline that has lasted for a year and a half.

But what is clear is that both joint ventures and independent brands hope to break away from this inertial downward trend.

01.
BMW's price hike against the trend brings unexpected surprise

At present, the news that BMW announced its withdrawal from the price war is spreading widely, but today a BMW official told Zhijia.com, "BMW has not made any official adjustments to the suggested retail price recently.Authorized dealers independently determine the terminal retail price at the time of sale based on market conditions. The final transaction price is affected by the specific transaction situation. If there is any fluctuation, it is a normal phenomenon of market regulation. "

She also said: "In the second half of the year, BMW will focus on business quality in the Chinese market and support dealers to make steady progress. Starting from July, the operating pressure of stores will be eased by reducing sales volume, aiming to help dealers cope with short-term market challenges and ease business pressure."

Having said that, BMW is indeed unwilling to be dragged into the abyss by the price war.

The starting price for the first half of this year is 353,900 yuan.BMW i3（parameter丨picture), the bare car price was once only 189,000 yuan.

Such a price reduction is not only unprecedented but also "unprecedented".

Today, a BMW dealer in Beijing told Zhijia.com that the price of the BMW i3 has risen to 205,000 yuan.

However, even so, it is still nearly 150,000 yuan lower than the suggested price, and this price below cost is still unsustainable.

Therefore, it is inevitable that BMW will be the first to withdraw from the price war and end this unsustainable loss as soon as possible. BMW China said that it will focus on business quality in the future.

According to relevant reports, starting from the third quarter, BMW China and BMW Brilliance cancelled the sales target assessment for dealers in the eastern region. The inventory pressure of BMW dealers was reduced, and they all reduced terminal price promotion efforts. The average unit price increased by about 13,000 yuan.

Regarding the price cuts of luxury brands, the core issue is whether they can increase sales by reducing prices. Based on past experience, price cuts are likely to increase sales. But in the era of smart cars, this situation has changed.

According to BMW's official information, in the first half of this year, BMW and MINI sold 375,900 new cars in the Chinese market, a year-on-year decrease of 4.2%. Among them, 188,400 were sold in the second quarter, a year-on-year decrease of 4.7%.

Not only did the price reduction fail to lead to an increase in sales, it even caused a certain degree of decline.

Taking the BMW i3 as an example, sales have indeed been gradually increasing since February this year, but the highest sales in June were only 6,952 units. Compared with the data in the same period of 2023, the monthly sales increase is only about 2,000 units at most, and there is no obvious improvement.

If we compare the price of a single bike that dropped from 353,900 yuan to 189,000 yuan, with a price reduction of around 160,000 yuan per bike, but only selling more than 2,000 new bikes, it's indeed a bit of a loss-making business.

Even the new cars that were sold at a discount during this period began to have rumors of "unexpected events".

On July 21, some media reported that after BMW withdrew from the price war, 4S stores in many parts of the country began to refuse to deliver cars on a large scale.

The report shows that according to a consumer from Chongqing, "I signed a car purchase contract with Chongqing Baoyu Automobile Sales Service (Group) Co., Ltd. on May 29. The car model was a BMW i3, priced at 174,500 yuan, and I paid a deposit. At that time, the salesperson said that there was no problem in picking up the car, but when it was time to pick up the car, the defendant required an additional price of 30,000 yuan. After many negotiations with the 4S store, the other party said that the car could be picked up by adding more than 10,000 yuan. Later, the manager said that there were no cars and production had been stopped. During the many days of negotiation and communication, the 4S store had different statements every day and the responses given were erratic."

There are also reports that consumers in Chongqing, Zhengzhou, Shenzhen, Suzhou, Dongguan and other places have revealed similar situations to the media. The car models are mainly concentrated in i3, ix3 and 3 series models. Most consumers ordered the car from the end of May to June, and were asked to temporarily increase the price when they picked up the car in July.

On July 22, BMW China said in an official response: "We have noticed the relevant content and conducted a preliminary internal investigation. The cases involved are all individual cases, and the specific circumstances of each case are different. We are actively communicating with relevant dealers and urging BMW authorized dealers to comply with the "Automobile Sales Management Measures" and relevant laws and regulations and contractual agreements, safeguard consumer rights, and ensure that consumers get a satisfactory service experience."

According to information obtained by Zhijia.com from several BMW dealers in Beijing, after the news of "BMW withdrawing from the price war" was released, the number of potential customers visiting the stores to view cars increased significantly.

At present, it is certainly too arbitrary to assert that the long-term bearish trend of "cars are getting cheaper and cheaper" has been reversed, but if all car brands are caught in a vicious cycle of no sales without price cuts, there will be no winners. Even if a certain sales volume is maintained, it will fall into a dangerous situation of loss and unsustainable operation.

By not following, at least you can maintain a healthy cash flow for a certain period of time and ensure the sustainability of operations.

In the words of Geely's Li Yunfei, "Do your best in a price war. If someone has played their cards, follow them if you think you can. If you can't, just give up. Don't get angry or overturn the table. There's still the next round. It's not over right away. Let's continue with the next product or the next round."

In China's current automobile market, after BMW nominally withdrew from the price war, not only Mercedes-Benz and Audi followed suit, but there are reports that joint venture brands such as Volkswagen, Toyota, Honda, and Volvo are also gradually recovering terminal discounts.

According to information from multiple sources compiled by Zhijia.com, the quotes for joint venture models in many places have been raised to varying degrees in recent days.

For example: A car owner in Hunan said that the price of all Honda models has increased by about 10,000 yuan;CamryThe discount for all models at Shenzhen 4S stores has been reduced to 40,000 yuan; the prices at Volvo's direct stores in Beijing have rebounded compared with last month; the prices of all models at Audi stores have increased, with the highest increase being 40,000 yuan, and some stores have increased prices twice in two days.

According to media reports, a sales representative at an Audi store in Chaoyang District, Beijing, said that because of the price adjustment, customers who had been waiting to see the price are now more willing to negotiate. Starting next week, Audi's prices will be raised.Audi A6LThe price of a bare-bones four-wheel drive car is nearly 340,000 yuan, and it is unlikely to drop in price in the future.

According to the latest data, last week (July 15-July 21), BMW's sales reached 13,400 vehicles, an increase of 1,400 vehicles from the previous month; Mercedes-Benz's sales were 13,600 vehicles, an increase of 2,100 vehicles from the previous month; and Audi's sales were 12,500 vehicles, an increase of 2,400 vehicles from the previous month. In terms of the weekly sales growth rate, BMW's growth rate was 11.67%, Mercedes-Benz's was 18.26%, and Audi's was 23.76%.

Although major brands have officially avoided saying they are withdrawing from price wars, they are almost unanimous in pushing prices back to normal in the terminal market.

This price return not only did not lead to a further decline in sales, but instead showed signs of stopping the decline.

It has to be said that changes in market trends are sometimes quite subtle.

02.
Luxury brands are stuck in price wars and it is not worth itlose

The advance and retreat of the joint venture brands and luxury brands in response to the price war is essentially a concentrated "earthquake" at the brand premium level.

The competition landscape of China's luxury car market has changed. Domestic new energy vehicles, especially new power brands, have risen rapidly. Brands such as Weilai, Ideal, and Wenjie have seriously impacted the market position of traditional luxury brands.QJM9For example, the cumulative orders for the SUV have exceeded 100,000 in the six months since its launch, setting a sales record for luxury models in the Chinese auto market.

At the same time, according to JDPower's statistics, starting from 2020, the post-90s car-buying group has surpassed the post-80s and post-70s to become the main car buyers, accounting for 32%.

Young consumers pay more attention to technological innovation when buying cars, have higher demands for smart travel ecosystems, and are more dependent on the intelligent connection and interaction of new cars, which further highlights the advantages of new force brands.

Therefore, once the previous product structure is broken, it will be difficult for traditional luxury brands to stick to their original pricing system.

According to the survey data of China's auto dealer inventory warning index, in June this year, China's auto dealer inventory warning index was 62.3%, which was above the boom-bust line, and dealer inventory pressure was still high. At present, the market pressure of luxury and imported brands is prominent, with dealer inventory warning index of 66.4% and mainstream joint venture brands at 60.8%.

Other data shows that since May this year, the discount rates of luxury brands have been relatively high. The discount rates of Beijing Benz, BMW Brilliance and FAW Audi are 18.6%, 25.7% and 26% respectively, while the discount rates of Volvo and Chery Jaguar Land Rover are as high as 33.4% and 41.6%.

In June this year, Shen Jinjun, president of the China Automobile Dealers Association, said at the 16th China Automobile Blue Book Forum: "Luxury brand dealers are beginning to suffer large-scale losses."

According to official data, in the first quarter of this year, BMW Group's sales were 36.614 billion euros, down 0.6% year-on-year, and profits fell 24.6% year-on-year; Mercedes-Benz's sales were 35.9 billion euros, down 4% year-on-year, and profits fell 25% year-on-year; Audi's sales also fell 18.7% year-on-year, and profits fell more than 70% year-on-year.

Even after significant price cuts, sales of traditional luxury brands still did not increase.

In addition to the BMW mentioned above, which saw a year-on-year decline of more than 4%, Mercedes-Benz delivered 352,600 vehicles in the Chinese market in the first half of the year, also a year-on-year decline of nearly 6%.

Therefore, traditional luxury brands joined the price war out of helplessness, and now they are withdrawing from the price war out of helplessness.

However, the strategy of controlling quantity and maintaining price can at least help to restore the brand value and image to a certain extent. At this stage when the premium ability of luxury brands has been generally impacted, it is unsustainable to make a profit at a loss, which will further destroy the price system of luxury brands and be more detrimental to their subsequent development.

According to relevant reports, a salesperson at a Mercedes-Benz 4S store once said: "Every time we sell a C-Class car, we lose 70,000 yuan. This situation will definitely not continue."

From this perspective, it is completely reasonable for traditional luxury brands and joint venture brands to withdraw from price wars. As long as the original market base is still there, there is at least hope to maintain a certain profit, thus maintaining the positive development of the enterprise.

03.
Ending this disorderly price war has gradually become a market consensus

At the 2024 China Automotive Forum, Wang Qing, deputy director of the Institute of Market Economy at the Development Research Center of the State Council, said: "The price war will ease in the second half of the year." Many auto executives have also called for an end to involution and unhealthy price wars. For example: Geely Senior Vice President Yang Xueliang believes that endless price wars have no way out; GAC Group Chairman Zeng Qinghong also said that this is not a solution.

Both joint venture brands and independent brands are now exhausted. Even for the best-performing brands, if you look closely at their balance sheets, you can't help but worry about their sustainability.

Does this indicate that the Chinese auto market is reaching a critical point of victory or defeat, a decisive moment when the landscape will undergo a drastic change?

Zhijia.com has said many times that the Chinese automobile market seems to be a completely free competition, but given the various ownership forms such as state-owned, private, and joint ventures, the result of competition sometimes does not lead to an increase in market concentration, but instead attracts various policy interventions.

In addition to leading to a lose-lose situation, price wars will not reduce the number of competitors. Instead, they will present a typical "involution" phenomenon (see: "" for details).

When BMW went against the trend, the Chinese market rarely pressed the pause button on the price war that had lasted for more than a year. Although such a balance may be short-lived and may not last long, this rare price increase will help Chinese consumers reflect on the inertial logic of buying cars based solely on price.

No one dares to say whether BMW can put an end to this price war. But everyone hopes that the Chinese auto market will return to rationality, return to basic business principles, and make money by selling cars.

As China's real estate market recovers slowly, it is particularly important to keep the automotive industry healthy and orderly.

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