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Will Qoros gain some momentum after price cut?

Under sales pressure, Qoros announced a maximum ¥26,000 ($3,976) price cut on its Qoros 3 model on February 22. The entry-level model equipped with automatic transmission is now labeled at ¥107,900, a 25 percent reduction from its debut price in 2013.

So far the youngest upper-class Chinese brand has been known for its high price but low sales volume.

Will the price cut work for Qoros? Not likely, according to an industry pundit. “After the price cut, the Qoros 3 is still one of the most expensive Chinese cars in its segment. The price drop might not work well,” the person said. According to him, there are two common approaches for price reduction. One is to reduce the price as much as possible, even lower than cost if necessary. The idea is to boost sales for the long run at the expense of current revenue. If successful, the automaker can eventually become profitable through a large enough sales volume. The second one is to reduce price conservatively like what Qoros has been doing. In a fiercely competitive market, such an approach hardly ever worked.

In March, Qoros will introduce its first SUV model the Qoros 5 to help with sales. Earlier in January, Qoros chairman Chen Anning announced the sales target of 30,000-50,000 units for 2016, a 170-200 percent growth. Qoros’ goal last year was 35,000 units or a 401 percent growth. Sales for the year were only 14,000. Because of poor performance, former CEO Phil Murtaugh left the company in less than one year at the position. The pundit said that the new goal is quite conservative. Considering the new SUV model and price cut, it should be an easy job for Chen to reach the new target.

At last year’s Guangzhou Auto Show, Qoros vice president Sun Xiaodong predicted that the monthly sales goal for 2016 is 5,000.

But is the 30,000-50,000 annual target good enough for Qoros? The person said: “It will be very challenging for a Chinese brand if it cannot reach 100,000 in annual sales. The Qoros 3 price may have to be further slashed. Positioning the Qoros 3 at a price slightly lower than that of the FAW Besturn B50 would be reasonable.”

For the upcoming Qoros 5 SUV, the ¥150,000-¥220,000 MSRP is ¥20,000 more than the Shanghai-Volkswagen Skoda YETI. According to the same analyst, ¥130,000 would be a more competitive price for the Qoros 5.

Qoros’ high price was partially due to high cost. To lower cost, Qoros has to increase sales. At this point, only Qoros knows about the sales volume with which they can break even.

The analyst does not believe that price cuts would affect the Qoros brand image. “Based on past experience in China, if a Chinese brand tried to increase its price with the belief that its product quality and technology have reached the same level as joint venture automakers, the results were usually negative.

This is because it takes time for the market to recognize the improvement in technology and quality of Chinese brands. The SAIC Roewe is a good example. SAIC Motor initially set the price of the Roewe at the same level as its JV counterparts. But sales were stagnant and finally the company had to reduce the price to gain some momentum.

“In terms of the brand influence, Qoros is weaker than Roewe,” the analyst said. “In order to build brand image, Qoros should build its vehicles with equal or better quality and technology with JV products and at the same time set prices based on level of Chinese brands. In a market where everyone is dropping prices, being able to maintain product price is already a win for a Chinese brand.”

(Rewritten by Kevin Wang based on author’s article published on Zhongshang Auto)

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