CHERY Automobile Co Ltd has become the first car maker to raise car prices amid furious competition this year after soaring raw material costs eroded profits.
Analysts said compared with joint ventures of global rivals, domestic car makers developing self-branded vehicles were more susceptible to the recent price hike on steel and iron ore given their already thin profit margin.
Chery, the nation’s fourth largest car maker, has added an average 1,000 yuan (US$142.8) to 3,000 yuan onto the price of its mainstream products, including QQ subcompact, Tiggo sport utility vehicle and the Easter Cross sedan, starting from this month.
Chery QQ, one of the top ten best-selling models in China last year, is now priced up to 50,000 yuan for the 1.1-liter version. The 2.0-liter Easter Cross was priced at 122,800 yuan after the highest 3 percent price increase.
Huang Zherui, an analyst from automotive consultancy CSM Asia Corp in Shanghai, said Chery’s price increase was unexpected as domestic car makers mainly compete in the lower market segment with their competitive price.
The price of iron ore has seen a 65 percent surge over the past few months which caused the cost of steel, which comprises 70 percent of a car, to rise around 30 percent in March compared to last year.
Wang Zhihui, an auto analyst from China International Capital Corp, said makers of small cars were hit harder by the surging cost than models in the mid-to-high class segment.
The profit margin of small cars with an engine capacity around 1-liter could drop 16.5 percent compared to a 4.3 percent tumble for an economy sedan, according to Wang.
Despite the rising cost of raw material and labor, the growth of the industry has remained strong with China passenger car sales reaching a total of 1.85 million units last quarter.
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