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Published on : May 21, 2015

With a slowing Chinese economy, the international automakers are cutting prices of vehicles to be sold in the nation. This has hit the profit margins of the automakers who are struggling with a slowdown in demand. 

Last week saw Ford Motor Co. and General Motors slashing their prices on Chinese models. It closely follows rival Volkswagen AG’s move last month to offer increased discounts on several of its models. Matt Tsien, chief of GM China, mentioned that the pricing adjustment is needed to be done as the market has turned softer. 

Industry analysts said that the massive price cuts by the international car manufacturers are due to the resistance by the Chinese customers to pay double or triple the prices charged for similar or identical models in the U.S. and Europe. The auto manufacturers are also increasing their production capacity to expand their sales volume, even though sales growth has decreased. 

GM reduced the prices of 40 various models last week. The Chevy Captiva SUVs, made by GM and SAIC Motor Corp., GM’s joint venture partner in China, saw a price cut of 20%. Ford reduced the price of Ford Explorer SUV by 8%. Last month, Volkswagen, and China FAW Group Corp. offered discounts and interest free loans to boost the sales figures. GM is focussing to maintain its operating profit margins in the range of 9% to 10% in China. Industry experts point that it will not be possible for the car manufacturers to achieve double-digit growth every quarter and sales slowdown will reflect an imbalance between capacity and demand.