Volkswagen joins China price war as new emissions rule looms

SAIC Volkswagen Automotive Co is offering 3.7 billion yuan ($537 million) in cash subsidies for car purchases in China, joining more than 40 brands in slashing prices ahead of a change in emissions rules in the world's largest auto market.

The joint venture between China's SAIC Motor Corp Ltd and Germany's Volkswagen AG is offering 15,000 yuan to 50,000 yuan in subsidies until April 30 for its full lineup, which includes the Teramont, Lavida and Phideon models, SAIC-VW said on its WeChat account late on Thursday.

Guangzhou Automobile Group, the Chinese partner of both Honda Motor Co Ltd and Toyota Motor Corp, has also offered subsidies running from March 15 to March 31.

Chinese passenger vehicle sales fell 20% in January-February, industry data showed, even as some manufacturers offered reduced prices to stimulate demand.

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Sales of new energy vehicles, which include all-battery and plug-in battery-petrol hybrid vehicles, grew faster than the overall market, accounting for over 30% in February. In the same month, Chinese electric vehicle maker BYD Co Ltd outsold Volkswagen-branded cars for the second month in four.

Government plans for a stricter auto emissions standard effective July 1 has added pressure to automakers and dealers to clear inventories of vehicles that do not meet the standard, Fitch Ratings analysts said in a client note on Thursday.

"There is no other way to describe what is happening other than a catastrophic decline in performance of multi-national ICE(internal combustion engine) brands," said Shanghai-based Bill Russo of consultancy Automobility.

The price war is likely to accelerate consolidation of the fragmented local auto industry which has over 130 passenger car manufacturers, state-owned newspaper Economic Daily said in a commentary on Friday.

But it could also hurt profitability and innovation and stall development of the overall sector, which is a pillar of the economy, the newspaper said.

Local governments have been supplementing incentives to revive demand for cars produced by local automakers. The central Hubei province and state-backed Dongfeng Motor Group Co Ltd have jointly offered subsidies of up to 90,000 yuan, or 40% of list prices for the entry-level Citroen C6 sedan produced by its joint venture with Stellantis NV.