TMTPOST--In recent weeks, the auto industry has been abuzz with news about some joint-venture car brands retreating from aggressive price wars.

This shift has caught widespread attention, especially a barrage of price reductions across the industry in the first half of the year, leaving consumers accustomed to constant discounts.

The central question is why some joint-venture brands are opting out of the price wars mid-way. The primary reason is that, despite these price cuts, sales figures have continued to decline. The goal of participating in price wars is to boost sales, but the reality has been the opposite—sales are not only stagnant but are showing a downward trend. This raises the question: if price wars don’t lead to increased sales, should automakers continue to cut prices?

Peng Baolin, the vice president of GAC Toyota, commented on social media on Monday, noting that discounts have reached their maximum, signaling that prices have truly hit rock bottom and it might be time to reconsider pricing strategies.

GAC Toyota, a Guangzhou-based Japanese-Chinese joint venture, has seen its model prices plummet during the price wars. The Toyota Camry, once priced at 120,000 yuan (US$ 16,497), has recently become so discounted that consumers are finding it difficult to distinguish between normal and promotional offers.

This trend isn’t unique to GAC Toyota, almost all Japanese joint venture automakers aggressively slashed prices throughout the first half of this year.

Models like the Nissan Sylphy, previously priced at over 60,000 yuan, and the Toyota Corolla, initially above 70,000 yuan, have seen prices drop significantly. The Honda Accord, once priced around 140,000 yuan, is now available for under 140,000 yuan. Discounts on models like the Toyota Highlander, previously priced at a premium, have reached over 70,000 yuan. Such drastic reductions have even prompted curious onlookers to visit dealerships to check out the unprecedentedly low prices.

However, are Japanese cars really being sold at these reduced prices?

Despite the dramatic price cuts, Japanese joint venture automakers are still struggling with sales. The major Japanese joint venture automakers—Toyota, Honda, and Nissan—have reported continued declines in sales in China. Data reveals that these three companies sold approximately 1.54 million vehicles in China during the first half of the year, a 13% drop compared to the same period last year. Toyota’s sales fell to 784,600 units, down 10.8%; Honda sold 415,900 units, a 21.5% decrease; and Nissan’s sales dropped to 339,300 units, down 5.4%.

The three major Japanese joint venture automakers are displaying unprecedented anxiety as their market share, accumulated over two decades, continues to be eroded by competitors. According to data from the China Passenger Car Association (CPCA), the market share of Japanese cars has shrunk to 15% in the first five months of this year, a decrease of 8.7 percentage points from the peak of 23.7% in 2020.

From 2020 to 2023, Japanese car brands have lost 950,000 units in sales in China, roughly equivalent to the volume of a leading joint-venture car brand.

The dramatic fall from grace for Japanese cars, once the fastest-growing joint-venture brands in China. Facing this unexpected market upheaval, Japanese joint venture automakers are pinning their hopes on the tried-and-true industry tactic of “lower price for higher volume” to regain market share.

For instance, the Toyota Corolla and RAV4 have reached rock-bottom prices at certain dealerships, with newly launched models like the Toyota Avalon available at discounts of nearly 40,000 yuan. Such drastic reductions are a far cry from the days when these vehicles commanded premium prices.

A sales representative at a Toyota dealership in Beijing mentioned that the discounts on popular models like the Corolla and RAV4 this year are more than double compared to last year. A RAV4, now priced under 150,000 yuan, was at least 180,000 yuan last year.

When asked about the effect of these discounts, the sales representative expressed frustration, saying, “Everyone else is cutting prices, and if you don’t, why would customers buy from you?” 

Data shows that Toyota's sales in the first half of this year were down 11.82% to 329,000 units. GAC Toyota's performance was even worse, with sales plunging 25.8% to 336,000 units. Popular models like the Camry and Highlander are also among those with the steepest discounts.

In contrast, the Honda dealership near Beijing appeared noticeably quiet. Despite significant discounts on models like the Accord and CR-V, foot traffic and sales were sluggish. Honda’s sales in the first half of the year were down 28.28% to 207,900 units.

Nissan China, another major Chinese-Japanese joint ventures, has seen relatively smaller discounts compared to Toyota and Honda. The Nissan Altima and X-Trail have discounts of around 60,000 yuan and 40,000 yuan, respectively. However, Nissan China’s sales decline, while significant, was less severe than that of Toyota and Honda, with a 5.4% drop to 339,300 units.

Many car dealers are offering promotions tied to high down payments and long loan terms. For example, customers can secure a heavily discounted vehicle by agreeing to a loan covering 80% or more of the vehicle’s price, with a loan term of five years and interest rates around 5% annually. This strategy effectively offsets the apparent savings from the reduced vehicle price with higher long-term costs due to interest.

An example provided by a sales representative at a GAC Toyota dealership shows that while a Highlander may be priced at 270,000 yuan with discounts, the total cost, including interest over a five-year term, can exceed 330,000 yuan. Similarly, a long-term loan with high interest rates can significantly increase the total cost of purchasing a vehicle, despite the upfront discount.

This pricing strategy reflects a complex approach where Japanese joint venture automakers aim to signal substantial discounts to boost sales, while preserving profit margins through intricate financing schemes. Unlike the straightforward discount strategies of Tesla and Chinese brands, Japanese joint venture automakers maintain a focus on profitability, which influences their pricing and promotional tactics.

While Japanese joint ventures continue to stress profitability, the rise of Chinese EV makers presents significant challenges. The conflict between maintaining profit margins and participating in price wars illustrates the anxiety and strategic dilemmas facing these traditional car manufacturers in a rapidly evolving market.