Top brands offer enticing May Day discounts

Luxury marques in race to slash recommended retail prices in response to 1% VAT rate reduction that came into effect May 1, Hao Yan reports.

Price cuts were made by some luxury marques during the recent May Day holiday - and more players are predicted to follow suit in a bid to attract customers.

Industry experts said the 1 percent drop in the value added tax rate implemented on May 1 triggered a flurry of reductions in the MSRP, or manufacturer's suggested retail prices for luxury cars.

Top brands involved included Mercedes Benz, Jaguar Land Rover, BMW, Mini, Lincoln and Porsche.

The aggressive cuts were made by German luxury car brand, Mercedes Benz, which slashed more than 32,000 yuan ($5,080) from the suggested retail price for some Mercedes AMG models.

British luxury brands Jaguar and Land Rover reportedly made cuts of up to 20,000 yuan to the prices of their vehicles.

"Customers will see more luxury automakers following suit. It's essentially a reaction to the lowered VAT rate," said Ron Zheng, a Shanghai-based partner with consultancy Roland Berger.

"Those who have not reduced their suggested price are largely going through their decision-making process," he told China Daily.

Zheng said hefty price cuts would be given to end-customers to win over the wavering and hesitant potential buyers who don't have strong brand preference or loyalty.

The MSRP is the price announced by an automaker at its product launch, but effectively serves as a reference for the final price paid by customers.

Customers usually enjoy discounted prices from dealers seeking to push sales performances, while sometimes buyers have to pay over the MSRP for very popular models in some cities.

A model's retail price ranks second among the various factors influencing a consumer's decision to buy.

It is only bettered by the number one factor - a vehicle's performance including its drivetrains - according to Roland Berger's findings in a national survey of Chinese customers.

The survey also found that the Chinese auto market valued the services provided by carmakers as the third major buying factor, and prices for used vehicles as the fourth influencer behind the decision.

"The extent of the price cut to an individual luxury car will influence some buyers," Zheng said. "However the reaction to the 1 percent drop in VAT won't deliver a blow to overall market shares," he added.

Cui Dongshu, secretary-general of the China Passenger Car Association, agreed that a number of things influenced a luxury car buyer's choice, and automakers were trying to leverage the 1 percent VAT reduction as an opportunity to tweak their prices.

"The Chinese luxury carmarket is becoming more volatile, so luxury carmakers are trying to seize any opportunity to gain the upper hand over their rivals," Cui said. "In the wake of the VAT cut, automakers that reacted with price cuts were mainly aiming at grabbing the attention of customers, then convert that into deals."

The CPCA chief also predicted that the remaining luxury car makers that had been hesitant on price cuts would respond soon, because they had been enjoying fat margins in the local market, and cuts of thousands of yuan to the MSRP would not particularly impact their profitability.

"Those that didn't cut their suggested price could possibly lose some buyers who will change their preference. Some will switch to the other brands in the same segment," Cui said.

Many luxury carmakers are pinning great expectations on their market performance in China this year, with the industry predicting double digit year-on-year sales growth in 2018.

Mainstream luxury cars registered total sales of about 2.6 million units last year, contributing 9 percent to total national car sales of 28.9 million units in 2017, according to industrial data.

Auto experts said that despite the latest moves, they did not anticipate that end consumers would enjoy major lasting price cuts, because the "real" retail price of the cars already reflected a sharp discount in many cases on the official MSRP.