Subcompacts Sold Below Cost, More Consumers Want SUVs in China

Recently, the once prevailing Subcompacts, have made car dealers quite miserable. As we suspected, SUVs are now the Chinese buyers’ new favorite while almost all the Subcompact models in China are being sold below cost.

Sales of Subcompacts dropped

According to FAW Toyota, this carmaker sold 473,000 units for the first 10 months of this year, a 3.3% increase compared against last year. However, the sales of VOIS and Corolla EX, two of the key models under the company’s small car strategy, have plunged. Statistics from China Passenger Car Association (CPCA) shows the sales of VOIS has only totaled 90,200 units this year, a 12.7% decrease compared against last year.

According to a manager of a 4S dealer in HuMen, the sales of these good-looking Subcompact models used to be good, but not anymore. It’s observed that the owners of Subcompact cars tended to upgrade a larger model when purchasing a second or third car and now people just want to spare the trouble of upgrading cars and choose a largermodel, such as SUV, directly when purchasing a first car.

Dealers sell at loss to meet quotas

Increasingly intensified competitions in all the segments of Chinese car market have resulted in a pretty crazy price war.

Some dealers confessed that they just need to get the Subcompact models off the lot, even at price below cost, so that they’re not sitting on these models.According to a dealer in HuMen, the Subcompact models are low profits products themselves, subjected to their low prices. The current competition level and automakers’ pricing strategy leave car dealers no other choice but to set an even lower price for a low profits product. Take VIOS for example, the price of this subcompact model has dropped from more than 70,000 rmb to around 50,000 rmb, and some dealer could make an even lower offer.

Consumers tend to buy larger models

The sales of Subcompacts have dropped dramatically and some domestic models are even no longer in the market anymore. Hongdeng Yi, an auto expert, said the narrowing price gap between Subcompact and other larger models and the higher demands of consumers have put Subcompact models in a dilemma. Consumers just tend to buy larger models now.

However, some experts believed carmakers had already sensed this trend and shifted their R&D focus to larger models.