Mazda hits reverse on price-cut pledge
By Wang Yu (Business Weekly)
Updated: 2004-07-26 14:04

A three-year promise has been broken -- after less than one month.

While consumers might be happy with this broken promise, industry analysts suggest it could lead to a new round of intense price-cutting campaigns in a sector plagued by slowing sales growth.

Yu Hongjiang, a senior sales manager with First Automotive Works Corp (FAW), said in June that Mazda sedan's price would remain unchanged for three years.

That was then. Today, the Mazda 6 2.3-litre sedan costs about 12,000 yuan (US$1,451) less.

The price was slashed in response to sales agents' requests for a business promotion, apparently not as a strategy from FAW's head office, Yu said.

"Although Mazda is under heavy inventory pressure, we will not adjust our basic price ... for sales agents nationwide," Yu said.

Experts say it is understandable for either Mazda or its sales partners to slash the prices of its flagship products, given the intensifying competition after General Motors (GM)'s cut prices in May.

"Although Mazda made a vague promise not to drop prices for three years, it is pointless to keep such a pledge," said Jia Xinguang, a market analyst with the China National Automotive Industry Consulting and Development Corp (CNAICDC).

"After all, selling more cars and making more money are the keys to auto makers' success and survival, especially as the growth of car sales is slowing down."

Z. S. Jones, executive managing director of Shanghai WP Automotive Consultancy Co Ltd, said it is unrealistic to expect car makers to maintain prices in a red-hot auto sector.

"Tough competition from arch-rivals sometimes forces auto makers to respond. Otherwise, they will be left far behind, in terms of sales," Jones said.

But Jones suggested car makers should be more careful when making such vows.

"No matter who makes the first decision to drop prices, the automakers' reputations will be affected if they have made such a promise," Jones added.

The point is if a car maker changes the price too frequently (even if is a price cut), consumers will not believe it any more. They will hold the money and do not buy until the next round of price war.

It is, of course, harmful for the industry.

Xie Wei, an analyst with CNAICDCorp, once said consumers have no reason to take either sales agents or carmakers at face value.

"They can always find an excuse for ... a price cut. They can claim they keep the price unchanged, while adding more equipment and/or functions to the vehicle, or giving gifts."

Xie expects a price war is inevitable, at least this. year Other experts agree.

"There may be more ... price-dropping campaigns from either car makers or their partners. And I agree the situation has been triggered by GM's witty price-cutting strategy," Wayne W.J. Xing, a renowned independent auto analyst and publisher of China Business Update, said.

New plant

Besides the controversial price drop, Mazda caught people's attention with an even bigger event -- the Japanese carmaker announced it has teamed with its one-third stake owner Ford Motor Co (Ford) to establish a car factory in eastern China.

The plant -- which will be located in Nanjing, near China's richest city, Shanghai -- will be run by Ford's joint venture with Chongqing Changan Automobile Co Ltd.

The plant is part of the US$1-billion expansion plan for China that Ford unveiled last year.

Ford China spokesman Kenneth Hsu declined to give details about Mazda's role in the project.

"The only thing we can disclose now is Mazda's 'participation' in the project," Hsu said.

"At this point, it's the signing of the investment agreement to obtain the land."

The project is being reviewed by the Chinese Government, and approval is expected within weeks, Ford said.

Mazda and Ford, toppled by Toyota Motor Corp last year as the world's No 2 auto maker, have long been looking for ways to co-operate in China.

Japan's business daily Nihon Keizai Shimbun reported last month that Mazda planned to take a 12.5-per-cent stake in Changan Ford for 40 billion yen (US$363.9 million).

Some Chinese media have reported the Nanjing plant will make the Mazda3 -- a hot-selling sports compact that is known as Axela in Japan.

Analysts do not agree.

"It may not be so swift ... since Ford has to, first of all, make its cars, such as the next-generation Mondeo, better equipped," Jones commented.

Xing suggested Ford may just be trying to take advantage of China's new automotive industry policy to set up another manufacturing base in China.

Under the new policy, released in June, foreign investors are permitted to create more than two JV plants in China to produce vehicles of the same categories, if they join forces with their existing Chinese partners to merge other companies in China.

Mazda, which aims to sell 300,000 cars annually in China by 2010, does not assemble its cars in the country.

Instead, it licenses manufacturing to two units of FAW Car Co Ltd, controlled by the country's top vehicle maker, First Automotive Works.

Executives at Mazda, which is Japan's fifth-largest automaker, have said local production of their cars will have to wait until the next stage of the firm's expansion in China.

Mazda is expected to announce its plans by year's end.

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