Though manufacturer suggested retail price has barely changed, the top 10 best-selling models of the first half have seen a big drop in actual prices, according to a survey of the Beijing Asian Games Village Automobile Exchange, which is regarded as the barometer of the Chinese auto market.

"Sales policies vary everyday, and the prices are floating. Preferential margins are directly proportional to the stockpile," said an insider.

Dealers in Beijing are not alone, as counterparts in other provinces send the same message of price reduction.

Zhang Chao, general manger of Beijing Zhonglian Auto Exchange, said that dealers lowered the prices as an immediate response to the increasing market competition and the rising cost of vehicle ownership for consumers.

Their price reduction must have been acquiesced from the manufacturers.

"Market competition draws the prices down, but many manufactures are reluctant to make it clear," said Zhang.

In the face of the market variation, reducing the sales prices stealthily, without changing the recommended prices, is a way for dealers to reap the actual benefits and save face for the manufacturers.

"It's true that some of the manufacturers and dealers are not confident of the situation," said Zhang.

The expectation of a surplus has also hurt their confidence.

"Dealers who did not achieve sales target of the first half are facing a high stock level," said Su Hui, general manager of the Beijing Asian Games Village Automobile Exchange.

"Estimating that sales volume may also be affected by the Olympic Games in August and September, as many dealers devote more efforts on sales promotion in the hopes of releasing the possible pressure at the end of the year," Su said.

Statistics from the beginning of 2008 imply that vehicle prices this year may soar instead of continuously falling as they have in the past few years, and many automakers urged the industry to raise prices to offset the fast rising cost, but few echoed.

An industry analyst thinks that the price increase of raw materials has limited influence on passenger vehicles. Whereas, the upsurge of labor cost is the main factor that pushes up the production cost, and the uptrend has ceased.

"Vehicle prices will still go down, in the long run," said the analyst. The reasonable profit margin for an automaker should be 3 to 5 percent, much lower than the current profit level of most manufacturers. Price cutting will continue when confronting the fierce competition.

The price of domestically-made vehicles in China in May decreased 2.78 percent compared to the same period a year earlier, according to figures revealed by the price monitoring center under the National Development and Reform Commission.

The survey, covering 36 big- and medium-scale cities nationwide, showed the price of the average domestically-made passenger car and commercial vehicle fell 2.26 percent and 3.82 percent, respectively, year on year.

(China Daily July 31, 2008)