Joint Venture Brands Amid Price Reduction Frenzy in China’s Auto Market

People looking at a Volkswagen car on display at a showroom in Beijing on May 10, 2020. Noel Celis/AFP via Getty Images

In recent years, the Chinese car market has witnessed intense competition. In less than three months of 2023, the competition has intensified further, with several joint-venture brands joining a price reduction war.

In early March, Chinese car maker Dongfeng Group, with the support of Hubei provincial authority’s subsidies, cut prices of several types of vehicles, including two Citroen C6 models, by up to 90,000 yuan ($13,000), setting off a price-cutting spree for fuel cars across China.

FAW-Volkswagen and FAW Toyota followed suit with promotions, SAIC-Volkswagen launched an Audi brand-buying campaign for its employees, SAIC-GM’s Buick brand gave special promotions of up to 70,000 yuan ($10,000) for a number of cars, and BMW Brilliance reduced the price of several models by 35,000 yuan ($5,095).

Chinese finance expert Qi Fang, who is based in the U.K., recently spoke to The Epoch Times on March 24 regarding the current situation faced by Chinese joint venture brands.

According to Qi, China’s declining population and economic slowdown have resulted in weak domestic demand and a continuous decline in sales volume in the passenger car market.

Joint venture brands have been slow to invest and establish themselves in the new energy vehicle market, and they lack the impetus to make transitions in accordance with China’s policy-driven market. Specifically, the SUV market has been impacted by hybrid vehicles, and the small car market has been affected by pure electric vehicles, further contributing to the decline in sales volume and market share for joint venture brands.

Sales Trends

According to data released by the Market Research Branch of the China Automobile Dealers Association, retail sales of regular fuel vehicles in China have been declining since 2019, with 19.68 million units in 2019, 18.18 million in 2020, 17.17 million in 2021, 14.88 million in 2022, and a 44 percent year-on-year drop in January this year.

At the same time, the retail market share of China’s domestic passenger car brands continues to grow, while the market share of mainstream joint venture brands has been consistently declining.

Specifically, the retail market share of domestic brands reached 35.4 percent in 2020, then increased to 41 percent in 2021 and to 47 percent in 2022. By February of this year, this share increased further to 51 percent.

An employee working on a car assembly line at a Dongfeng factory in Wuhan in China's central Hubei Province on Sept. 14, 2020. STR/AFP via Getty Images

During the same period, the market share of China’s mainstream joint venture brands was 44 percent in December 2021; 39 percent in December 2022; 36.4 percent in January; and 34.5 percent in February this year.

In February, China’s joint venture brands sold 480,000 vehicles, representing a 12 percent year-over-year decline. German brands accounted for 20.6 percent of retail sales in February, up 0.2 percentage points from the previous year. Meanwhile, Japanese brands accounted for 17.6 percent of retail sales, down 5.4 percentage points year-on-year, while American brands accounted for 7.5 percent of retail sales, down 1.6 percentage points year-on-year.

According to Qi’s analysis, the current strategy of new energy vehicle brands, offering deep discounts to seize market share, has had a significant impact on the sales of traditional fuel cars. This effect is particularly pronounced for joint venture brands, whose market share is expected to continue declining in the future.

However, most Chinese domestic new energy vehicle brands, aside from BYD, are currently running at a loss. If Chinese domestic new energy vehicle brands are unable to achieve profitability this year, it will be difficult to sustain their price reduction strategy, and there is a possibility that the market share of joint venture brands may reverse.

Joint Ventures

In the 1980s, China’s auto industry faced three No’s: no market, no technology, and no capital. The communist Chinese authorities used the strategy of “market in exchange for technology” and “market in exchange for capital” to bring in German, French, and Japanese car companies such as Volkswagen, Peugeot, and Isuzu, giving birth to joint venture car factories in China.

People looking at a BMW 1-Series "sharing car" in Shenyang in China's northeastern Liaoning Province on Aug. 10, 2017. STR/AFP via Getty Images

China’s cheap manufacturing industry became directly integrated into the global market after the country formally joined the WTO in 2001, attracting more foreign investment into China’s auto industry. GM, Ford, BMW, Honda, Toyota, Mazda, Mercedes-Benz, and several other foreign brands entered China one after another. It was a period of prosperity for China’s auto market.

By 2009, China’s auto production and sales surpassed that of the United States and became the world’s largest auto producer and seller. China’s state-owned automakers, including BAIC, Dongfeng Motor, SAIC, FAW, etc., which cooperated with foreign investors, were able to join the ranks of the world’s top 500 companies thanks to the huge profits brought by joint venture brands.

However, with the expansion of the new energy vehicle industry, the once glamorous joint venture brands started to go downhill.

In 2012, China’s State Council issued the Energy Conservation and New Energy Vehicle Industry Plan (2012-2020) in order to send China’s new energy vehicle industry onto a fast track.

Then in 2018, the Chinese Communist Party (CCP) implemented significant reductions in import tariffs on automobiles, relaxed equity ratio restrictions on joint ventures, and welcomed the introduction of Tesla into the Chinese market. These developments led to an explosion in China’s new energy vehicle market, which has accelerated the erosion of the traditional vehicle market.

Starting this year, traditional joint venture brands in China have been embroiled in a price war and have resorted to a “price for volume” strategy.

The mainstream joint venture brands in China’s passenger car market had a market share of over 60 percent in 2014, but by 2023, that share dropped to 34.5 percent.