Recently, there has been a lively discussion about the involution and price wars in the domestic automotive market. Some believe that involution is a good thing, a normal process of good money driving out bad, and should be embraced and participated in. However, others argue that the current intensifying involution and price wars are essentially low-price competition, with companies losing money to gain popularity. This kind of competition is not orderly or healthy, but rather vicious, disrupting the normal order of automobile production and circulation, ultimately harming the interests of consumers and the healthy development of China's automotive industry.

How should we view the current involution and price wars in the domestic automotive industry? It is necessary to clarify several basic concepts:

First, the current involution in the domestic automotive market is not normal, orderly competition or healthy competition, but rather an unhealthy vicious competition.

The term "involution" here refers specifically to the chaos in the current domestic automotive market, and is a pejorative term. We cannot equate involution with normal market competition.

Wang Xia, President of the Automotive Branch of the China Council for the Promotion of International Trade, pointed out in his speech at the opening ceremony of the China Automotive Chongqing Forum that the entire automotive industry is shrouded in an atmosphere of anxiety and involution, with competition in prices, configurations, speed, traffic, and even the bosses themselves. He said that we should provide consumers with differentiated value experiences through breakthroughs in core technologies, rather than allowing price wars to drag us back to the old path of homogeneous competition and losing our ability for sustainable development.

Li Shufu, Chairman of Geely Holding Group, pointed out in his video speech at the Chongqing Forum that the degree of involution in China's automotive industry is the highest in the world, and the price wars are unparalleled. Endless involution and简单粗暴的价格战 will only result in cutting corners, counterfeiting, and disorderly competition that does not comply with regulations. For the automotive industry, it is crucial to compete healthily and legally in order to achieve sustainable and high-quality development.

Wang Fengying, the former president of Great Wall Motors and current president of Xpeng Motors, recently stated that the Chinese automotive industry is becoming increasingly involved, from competition in technology, configurations, and prices, to starting to "involve public opinion" today. As a veteran in the automotive industry for 30 years, I find this particularly distressing.

Wu Zhoutao, the executive deputy general manager of Beijing Hyundai, said at a recent forum that there is indeed excessive competition in the current automotive market. If industry development is healthy competition, it is a process of good money driving out bad money. However, if it is excessive competition, the market may become a process of bad money driving out good money.

He said that there have been some unreasonable competitive behaviors in the current domestic automotive market. For example, relying on subsidy policies, exploiting suppliers, using inferior products to pass as good ones, and even engaging in false propaganda, misleading consumers, attacking competitors with water armies and influencers, and using patriotism to bind consumers. These behaviors have caused significant harm to the overall development of the industry and are unreasonable competitive behaviors that need to be stopped.

Wu Zhoutao believes that truly healthy competition relies on technological innovation and cost control, which brings about reasonable competition and is necessary for the long-term development of the industry.

Second, price wars are inevitable under a market economy, but price wars below cost are illegal.

China's economic system is a socialist market economy. Under market economy conditions, enterprises continuously reduce product prices through technological innovation, cost control, and large-scale operations, while ensuring reasonable profits. This is allowed by law and encouraged by the country. However, if companies dump products at prices below cost in order to seize market share and squeeze out competitors, it violates the "Price Law of the People's Republic of China" and the "Anti-Unfair Competition Law of the People's Republic of China," and is a criminal act.

Currently, except for a few dozen products priced by the state, the rest are market-regulated prices. Market-regulated prices are set independently by operators and are formed through market competition. Automotive products belong to market-regulated prices and are set independently by automotive companies. The basic basis for pricing is the cost of production and operation and the market supply and demand situation.

Article 4 of the "Price Law of the People's Republic of China" states that the state supports and promotes fair, open, and legal market competition, and maintains normal price order. Article 9 states that operators should strive to improve production and operation management, reduce production and operation costs, provide consumers with reasonably priced goods and services, and obtain legitimate profits in market competition.

Article 14 states that operators must not engage in the following unfair pricing behaviors: dumping products at prices below cost in order to squeeze out competitors or monopolize the market, disrupting normal production and operation order, and harming national interests or the legitimate rights and interests of other operators.

In the current intensifying price wars in the domestic automotive market, there are indeed some products being dumped at prices below cost.

According to data from the China Association of Automobile Manufacturers, compared to 2021, the average price of domestic automobiles in 2023 decreased by approximately 15%. Passenger vehicle prices have declined even more. From the beginning of last year to the end of May this year, the terminal prices of domestic passenger vehicles have decreased by approximately 25%. Many automobile manufacturers' profits have dropped sharply, and some have even suffered losses, while many automobile suppliers and dealers are in a state of severe loss.

In a market economy environment, it is impossible to completely avoid price wars, but relying solely on price wars has no future for China's automotive industry. Engaging in price wars below cost is akin to drinking poison to quench thirst.

Third, price wars below cost severely harm consumer interests and the development of the automotive industry.

Some argue that car price reductions, allowing consumers to spend less money, are beneficial to car buyers. However, this is not the case. The result of low-price competition and vicious competition is inevitably a decline in car quality and a reduction in after-sales service levels, seriously harming consumer interests.

For an entire automobile, the outsourcing cost generally accounts for 40% to 60%. When the OEM reduces prices, it first pressures parts suppliers to reduce prices. Some suppliers, in order to retain orders, have to lower standards, cut corners, and use inferior products to pass as good ones. On the other hand, the OEM also pressures dealers to reduce prices, invisibly lowering the standards of after-sales service. In the end, although consumers may save money when purchasing a car, it brings a series of problems later on.

Enterprises always need to make a profit. Only by making money can they invest in research and development, ensuring the sustainable development of the enterprise. Relying solely on price wars to seize market share, increasing production without increasing income, ultimately harms one's own competitiveness.

China has been the world's largest automobile producer and seller for 15 consecutive years. As a pillar industry, the automotive industry plays an important role in driving economic growth, providing employment, and expanding domestic demand. For the stable and healthy development of the automotive industry, every link from automobile suppliers, OEMs, to automobile dealers must have a certain profit. If parts suppliers do not make money, they cannot ensure the quality of automotive products. If OEMs do not make money, they cannot invest in research and development, update products, and innovate in technology. If dealers do not make money, they cannot provide good after-sales service. The current bloody involution and price wars in the domestic automotive market are unprecedented in severity. If they cannot be stopped soon and returned to a path of healthy development, it will ultimately harm the entire automotive industry. (End)