We Have to Reduce Prices of Passenger Cars in Metropolitan China
1. Executive SUMMARY
We found that there is a great potential demand in the family car market of China, cars that sell for under RMB 100, 000 yuan each enjoy the greatest popularity, and price is the main factor that directly influences consumer decision to buy.
It is therefore necessary to reduce the price of cars. For this, we recommend that the manufacturing costs be reduced and, step by step, the average price of a family car be lowered to around RMB 50, 000 yuan in five years.
2. INTRODUCTION
1) Purpose
This report has been drawn up to look into the necessity of reducing the prices of cars and to recommend suggestions about how to achieve the price reduction objective.
The purpose of this report is to look into the necessity and possibility of reducing prices in the family automobile industry in China, and to recommend feasible solutions to this proposition.
2) Background
We conducted a questionnaire to generate data on public opinions (see appendices) of owning a family car. We looked into important parameters of Chinese consumers towards owning a car, such as income, housing, and affordability.
Meanwhile, we considered the profitability of the passenger car manufacturing industry.
Middling Company is one of the pioneer car companies in China, which was also one of the first joint venture players in the Chinese market. In 1983, … Ten years later, our first car manufactured in South China ... Moreover, our outputs and earnings in recent years are promising, too. See table 1.
|Year Annual |Unit sales |earnings * |
|2007 |23000 |8.00 billion |
|2008 |33000 |8.50 billion |
|2009 |45000 |9.20 billion |
|2010 |50000 |10.00 billion |

However, with China’s entry into the WTO, more international automobile makers are coming to China and the competition is becoming fiercer. Now, the most threatening competitors are Japanese Honda, which now focuses economic family cars, and some Chinese manufacturers. Therefore, it is urgent for us to make some constructive strategies.

3) Methodology
The information for this report is mainly gathered from 3000 families in Beijing (see appendices) through the distribution and filling of the said questionnaire. Some supporting and background data are from the news media.
|Grade |Cars |Current Price * |
|High-grade |Buick (Shanghai GM) |320,000 |
|High-grade |Red Flag |220, 000 |
|High-grade |Honda (Guangzhou) |210,000 |
|High-grade |Audi |210,000 |
|MiddIe-grade |Fukang |140,000 |
|MiddIe-grade |Jetta |130, 000 |
|MiddIe-grade |Santana |110, 000 |
|Low-grade |Xiali |90,000 |
|Low-grade | Auto |60, 000 |

3. 2 Great Market Potential in China

3.2. 1 The Great Profit Margin of Car Industry
According to some media, the profit of car industry has reached billions. In 2006, Jetta earned RMB 12 billion; Buick earned 8 billion RMB; and our Santana earned RMB 40 billion. No other market but Chinese car market can bring to a car company such a big profit. So it is reasonable for us to try to hold this market.
3. 2.2 Large Demand for Economic Family Cars in China

A) Need for cars due to housing in suburbs
In many old cities, such as Beijing, Shanghai, Guangzhou and Tianjin, a lot of apartment buildings are being built in the suburbs. Thousands of people live in these areas, where the transportation is not very convenient. Therefore, for the sake of work, it is necessary for them to buy a car in the near future.

B) Need for economic cars because of low income
In our research, 2, 000 of the 3, 000 families express their desires to own a car. Low income, however, keeps them from doing so. The average income is RMB 4, 000—5, 000 yuan per month and only a few people enjoy high salary. So they can only afford low-priced economic family cars.
4. CONCLUSION
The above findings show that there is great sales potential in Chinese car market and it is necessary for us to lower the prices of cars.

5. RECOMMENDATIONS
In view of the current situation regarding price reduction, the following suggestions are recommended.
5. 1 The Price Reduction Should Be Conducted Gradually.
The price should be placed under RMB 100, 000 per unit and, in the future 5 years, the price will be lowered gradually to RMB 50, 000 per unit.
5. 2 A New Production Should Be Built
One billion dollars should be invested to build a new production line because mass production will reduce the cost and so lower the price. About the source of capital, our suggestions are:
a) US$4 billion dollars from the World Bank
b) US$6 billion dollars being loans from Bank of China

6. BIBLIOGRAPHY
Beijing Evening News
Beijing Daily www. chinacar. Online.com