Given the sharp tariff cuts on imported sedans in the wake of World Trade Organization accession, Ye has found himself at a crossroads.

On the one hand, imported sedans have begun to flood the market since the New Year; on the other, except for a few pioneers, major automakers like Shanghai Volkswagen and Shanghai General Motors have decided to maintain their products' prices for the moment.

"I would prefer to buy a domestically manufactured car considering the convenience of after-sales service," said Ye.

"But imported sedans will become increasingly appealing if the domestic makers stick to their current pricing."

Influx of imported sedans

With WTO accession, the central government significantly lowered tariffs on imported sedans at the beginning of the year, resulting in an average 10 per cent drop in prices of imported vehicles.

Tariffs imposed on models equipped with 3-litre or larger engines were cut to 50.7 per cent from 80 per cent, while those on smaller engines dropped to 43.8 per cent from 70 per cent. By 2006, tariffs on all imported cars will gradually drop to 25 per cent.

Together with the increase in the auto import quota, set at $8 billion this year, the tariff cuts will lead to a surge in demand for imported cars, which could well reach 150,000 units nationwide in 2002, experts said.

Statistics from Shanghai Customs show that auto imports rose to 105 units during the first two working days of the year, a 162.5 per cent increase compared to the average daily import of 20 units in 2001.

Prices of imported cars, especially high-end models like those of BMW, Lexus and Mercedes-Benz, have dropped sharply, attracting an increasing number of potential buyers. At least 5,000 imported cars are expected to be sold in Shanghai this year, double the figure for 2001.

"I have been tracked every day by anxious customers in pursuit of our cars," said Feng Shihong, general manager of Shanghai Senhong Car Trading Co, Shanghai's sole Peugeot agent.

With plans to open a demonstration hall in the city soon, Feng's company has targeted sales of 250 units here this year.

Staff of the Shanghai Waigaoqiao Car Trading Centre estimate that they will handle 600 orders in January, compared to 288 orders handled during the same period last year.

Experts expect a new wave of car imports in March as China discloses its auto import quota.

Controversial price cut

Under growing pressure from imports, some domestic manufacturers have since September cut prices in a bid to lure wait-and-see consumers.

Tianjin Automotive Industry Corp has slashed prices for its Xiali 2000 Century Square model, widely seen as a rival to Shanghai General Motors' economy car Sail, by 20 per cent, from nearly 120,000 yuan ($14,500) to 97,000 yuan ($11,700).

Hainan Mazda and Geely have adjusted the prices of their models in varying degrees.

Yet the country's other major auto manufacturers seem to be staying out of the price war, at least for the moment.

"Everybody talks about price cuts, but no one can figure out where the real end of such cuts is," said Xiao Guopu, general manager of SAIC-Volkswagen Sales Co, sales arm of the Sino-German giant that occupies nearly 35 per cent of the domestic auto market.

"Frequent price cuts only indicate the immaturity of an auto enterprise," said Xiao, who added that it is necessary to keep close watch over market changes before any further moves.

"Our priority at present is service-oriented strategy," he said. "We believe that would be an effective way of thawing the wait-and-see ice and ending consumers' long and painful anticipation of having a car of their own."

Targeting sales of 255,000 units this year in comparison with 2001's 242,000 units, his company is to launch a new value-added service nationwide, under which it promises a rebate for any possible future price differential of its models.

While some analysts caution that foreign automakers need to expand service networks nationwide to sharpen their competitive edge, Xiao's company has decided to widen the profit margins of its dealers around the country and further improve after-sales service this year.

Joan Ren, public relations manager for Shanghai General Motors, had a similar view.

"Though some of our dealers nationwide may offer varied incentive packages around the Spring Festival, Shanghai General Motors has currently no plan to cut the price of our products," said Ren.

"But we do hope that domestic consumers can end their waiting and enjoy driving as soon as possible."

Such a stance has aroused insiders' doubts.

"Domestic automakers should be wise enough to secure their market position through effective price reductions, otherwise they may easily lose market share given the coming flood of quality imported cars," said Zeng Weixiao, manager of Shanghai Materials Group Car Trading Co.

| frontpage | nation | business | HK\Taiwan | snapshots | focus |
| governmentinfo | economic insights | campus life | Shanghai today | metropolitan |