Automobile prices will switch from a pattern of decline to a gradual upswing this year an industry insider said to the Beijing Times.

Mainstream opinion holds that current auto prices have hit the bottom line.

"The soaring costs and high material prices squeeze out profits, reducing the profit for a (BYD) F0 rigid vehicle to no more than 1,000 yuan (US$146.03). We will not reduce the price for F0 for a year unless costs fall", said Xia Zhibing, general manager of BYD Auto.

His remarks have now sparked controversy in the industry.

Rao Da, secretary of the National Passenger Car Information Exchange Association, confirmed the fact that profits in the auto industry were plummeting.

In a period of global inflation, imported inflation became the main factor forcing up costs in the industry, said Rao. The automotive and steel and plastics industries have all the witnessed price surges of their raw materials, with ore prices up 85 percent from last year, and oil prices skyrocketing to an unprecedented high. Though the development of the market may offset cost rises in purchasing, there has been almost no room for price reductions.

Domestic auto prices were more than 100 percent above those on the international market for the past 15 years, but nowadays most of them are far below that of their international rivals, commented Rao.

"Price wars in the auto market are likely to finish in China. The time for price reduction to be the most effective and achievable competition approach is drawing to an end, while competition in technology, quality, marketing, brand, and service will become the main channels for a company to win out." he said.

"On condition that the inflation pressure eases and the market rebounds with consumers' purchasing capacity strengthening, auto manufacturers may decrease prices, if their profits rise, or to clear the suspended models. But that would no longer be the main form of competition", said Rao. "It would be the most cost effective time for potential customers to buy cars in this year, if they are not waiting for the latest models, as price competition will become history in the auto market."

(China Daily September 12, 2008)