Foreign Automakers Cut Suggested Retail Prices by 7.5%

Several high-end car companies have announced they will lower the reference prices for their vehicles in China, following the government’s upcoming reduction of import duties for select cars to 15% from 25%.

Most manufacturers have slashed their suggested retail prices by 6% to 7.5% with immediate effect, even though the new policy will not be implemented until July. They said they will absorb the extra costs during the transitional period.

U.S. electric-car maker Tesla Inc. was the first to respond to the duty reduction, cutting reference prices for Model X and Model S vehicles by about 6%.

Other international firms followed suit, including Volvo, Mercedes-Benz, Porsche and BMW. Britain’s Jaguar Land Rover axed reference prices for its SV Coupe models by as much as 390,000 yuan ($60,800), and its Evoque line by 200,000 yuan.

Automakers offer pricing guidelines to dealers, who can then freely set their final retail price tags to consumers. The reference price cut will ultimately benefit buyers, but its impact will be minor, as will the impact of the tariff cut.

This is because customs duties constitute only part of the total cost of importing a foreign car. Two other major types of levies are consumption and value-added taxes, in addition to shipping fees and distributor profits.

Instead of posing a significant threat to domestic automakers, industry analysts said the tariff reduction will bolster the now underperforming premium-car segment.

The move is expected to drive market demand and push the market to be more “mature,” according to Li Yanwei, an analyst for the China Automobile Dealers Association.

Twenty foreign and domestic premium car brands sold a total of 232,000 units (link in Chinese) in China in April — a 3.6% decrease compared with the previous month, according to data compiled by Yiche, an automotive marketing services provider.