Volkswagen joins price war in China as new emissions regulations loom

SAIC Volkswagen Automotive is offering 3.7 billion yuan ($537 million) in cash subsidies for car purchases in China, joining more than 40 brands in lowering prices ahead of a change in emissions regulations in the world’s largest auto market.

The joint venture between SAIC Motor from China and Germany Volkswagen is offering subsidies ranging from 15,000 to 50,000 yuan through April 30 for its entire lineup, which includes the Teramont, Lavida and Phideon models, SAIC-VW said on its WeChat account late Thursday.

Guangzhou Automobile Group, the Chinese partner of both Honda engine And Toyota enginehas also offered subsidies that run from March 15th to March 31st.

Chinese car sales fell 20% in January-February, industry data showed, although some manufacturers offered discounted prices to stimulate demand.

Sales of new energy vehicles, which include pure battery and plug-in battery gasoline hybrid vehicles, grew faster than the overall market, accounting for over 30% in February. In the same month, Chinese electric vehicle manufacturer BYD Volkswagen brand cars oversold second month out of four.

Government plans for a stricter auto emissions standard effective July 1 have increased pressure on automakers and dealers to clear inventory of vehicles that don’t meet the standard, analysts at Fitch Ratings said in a note to clients on Thursday.

“There is no other way to describe what is happening than a catastrophic decline in the performance of multinational ICE (internal combustion engine) brands,” said Shanghai-based Bill Russo of consulting firm Automobility.

The price war is likely to accelerate consolidation in the fragmented local auto industry with over 130 carmakers, state-run Economic Daily newspaper said in an op-ed on Friday.

But it could also hamper profitability and innovation and stall the development of the entire sector, which is a pillar of the economy, the newspaper said.

Local governments have added incentives to stimulate demand for cars produced by local automakers. The central province of Hubei and government-backed Dongfeng Motor Group have jointly offered subsidies of up to 90,000 yuan, or 40% of the list price, for the Citroen C6 entry-level sedan co-produced by their joint venture Stellantis.