GM Lowers Prices On China Models

GM drops prices in China ahead of import barrier cuts Sunday May 16, 11:46 pm ET

SHANGHAI, May 17, 2004; Reuters reported that General Motors has cut prices on two core models in China by up to 11 percent ahead of a major reduction in import barriers next year, the company said on Monday.

GM, whose China profits nearly quadrupled in the first quarter on sales which leapt some 70 percent, said the price cuts on the Buick Regal sedan and GL8 wagon would take effect immediately.

Under China's World Trade Organisation entry commitments, import permit quotas are due to be axed from 2005 while tariffs will fall to 25 percent in July 2006 from around 40 percent at present.

GM said its main venture, based in Shanghai, sold just over 94,000 Buicks in the first four months of the year, up 117 percent from the year-earlier period, outpacing the overall market which grew around 40 percent.

GM made $162 million in China in the first quarter, up from $44 million in the same period last year.

Imports now only make up a small percentage of total car sales in China -- which almost doubled to break the two million mark last year -- with companies like GM and market leader Volkswagen AG making most their products domestically.

The high cost of production in China due to logistics difficulties and other problems means making a car in the country can be 30 percent more expensive than in North America or Europe.

Last year GM said it would raise capacity by 50 percent in China to 766,000 units, adding production lines in Shanghai and at another venture in the southern region of Guangxi.

Analysts fear a price war in China just down the road on the expected rise in car imports and massive investments by auto giants in boosting capacity which may not be reflected by a rise in demand.

Price cuts have already begun affecting the bottom lines of some locally-based auto makers, such as Toyota's Chinese partner Tiajin FAW Automobile Ltd, whose first quarter net earnings slid 76 percent.