Manufacturing News

Great Wall price cuts may trigger deeper SUV discounts across industry, analysts warn

Chinese automakers will offer bigger discounts on their SUVs after market leader Great Wall Motor Co. lowered prices on two of its most popular models, according to Barclays and Sanford C. Bernstein & Co.

Great Wall, the biggest maker of SUVs in China, cut prices this week on its H2 and H6 models by 5,000 yuan ($805) and 6,000 yuan ($966), respectively, sending its shares to a five-month low in Hong Kong trading.

"We must say we are surprised that GWM is leading the price cuts among OEMs, since sales of its H6 and H2 have been solid and the overall discount level is low," Yang Song, an auto analyst at Barclays, wrote in a note Thursday. "We expect more local OEMs to follow GWM's lead and the price decline to be widespread."

The price cuts by Chinese automakers are taking place amid expectations that increasing discounts by foreign brands in China will pressure local companies into stepping up incentives. After years of losing out to foreign brands, China's automakers came up with a winning formula by flooding the market with cheaper SUV models. The surge in popularity for the budget models caught foreign brands by surprise, prompting price cuts by carmakers from Volkswagen AG to Honda Motor Co.

Almost half of the new and refreshed passenger vehicles slated for debut this year in China are SUVs, and about three- quarters of those are from local automakers, according to estimates by Bloomberg Intelligence.

"We believe these cuts are motivated by weak underlying sales," Robin Zhu, an analyst at Sanford C. Bernstein, said of Great Wall's discounts. "It seems inevitable that intensifying competition will compress returns even as volumes grow."

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