In the past couple of years Taiwan's car customers have really come to feel they are getting a bargain. A 1,500 c.c. compact model now costs only NT$300,000 to NT$400,000, just right for a small family.

Every now and again yet another make of car, whether locally produced or imported, launches a sales promotion media blitz. This usually focusses on the make's thoroughbred design, after-sales service and generous horsepower, but the most effective gambit of all is--a price discount.

"Taiwan customers don't have strong preferences as to the make of car, most people today are still go for the best price," says China Benz Company manager Fang Ming-feng. "So lowering the price has an immediate effect." This truth is widely understood within the business.

The price-cutting race is aimed at staying ahead of the competition.

With the advantage of lower tariffs and NT dollar appreciation, imported cars have plenty of scope for price reductions. Between the end of 1986 and July this year, prices tumbled by 20%. Last May alone, price reductions were announced by over 20 car import dealers. Sam Shin Trading Co., Taiwan's largest importer of foreign cars, slashed its prices three times during the course of 1989. Seat Cars has recently lowered prices by NT$40,000 to NT$60,000 on two-thirds of its models.

After a ferocious price war, the market share of imported cars has grown from the 1986 figure of about 15% to a respectable 35% as of the end of 1989. And from 63,000 units in 1987, annual sales in 1989 shot up to 180,000 units.

Pressured by imports, local car makers face higher wage costs and rising anti-pollution outlay. But to safeguard their market share they have fallen over one another to slash prices by an estimated average of 10% between the end of 1986 and July 1990.

Although the market share of locally-made cars has shrunk from over 80% to a current level of 65%, annual sales still grew from 200,000 units in 1986 to 320,000 units last year.

Taking an overall view of the Taiwan car market, every local manufacturer is seeking to increase the size of the pie and obtain the largest possible slice of that pie. And that aim is in fact being achieved.

But current prospects point to a steep decline. The local stock market index has tumbled from 12,000 points to around the 3,000 level, producing a sharp fall-off in car purchases and reducing the sales projections of car manufacturers and import dealers to so much waste paper.

In view of these circumstances the Ta Ching Motor Co., makers of the 1,200 c.c. Justy, have been forced to close down production temporarily, while slashing prices by NT$14,500 to sell off their remaining stock. Sanyang and Peugeot have also announced cutbacks in production.

Imported cars are even more badly hit. Since import orders have to be placed six months in advance, the sudden setback in what looked like a promising market at the start of the year has resulted in a vast stockpile of 65,000 unsold cars. Even the BMW series, usually impervious to price fluctuations, has seen 10% price cuts to shift a growing stockpile.

Some car makers have refused to contemplate price cuts, one example being Mercedes Benz. Their stockpile of 500 unsold cars was shipped back to Germany in early September. Meanwhile British car maker Austin Rover have sold their recent shipments on to third countries.

Faced with a general slump in the market, local car manufacturers and import dealers alike have already waved the magic wand of price cuts, but this has not necessarily had the desired effect as yet. Seat Cars, for example, according to August sales figures compiled by the office of Motor Vehicle Inspection, sold only 276 units after slashing prices by NT$40,000 to NT$70,000, hardly a successful sales promotion by any measure.

Leaving aside the question of current market supply and demand, the sheer number of car makes available and the ferocity of market competition mean that prices will continue to fall both for local and imported models. What's more, next year's cuts in automobile import tariffs from the current 40% to 30% are bound to touch off another price-cutting war from which consumers stand to be the biggest beneficiary.