An auto price war is looming in China as two Chinese automakers - Chery and Guangzhou Honda - slashed car prices in the hope of bumping up their sales figures before the end of the year.

When Chery launched its new QQ 6 model earlier this month, company vice president Qin Lihong announced that it would lop 4,000 yuan to 40,000 yuan (500 U.S. dollars to 5,000 U.S. dollars) from the price tags of six brands and 47 models.

Analysts said the unexpected move was Chery's latest attempt to sustain sales as products from other automakers chewed into the Anhui-based company's market share.

Chery needed to put on a spurt to make its annual sales targets as the end of the year draws near, said analysts.

But Chery said that the price cut marked the beginning of a new 2007 marketing strategy, after it had "developed a full range of models, established a mature sales network and achieved a high output of car engines".

Guangzhou Honda Automobile Co. Ltd. is also trying to undercut competitors, reducing prices of four of its popular models - the Fit, the City, the Accord and the Odyssey - by an average of 20,000 yuan.

Fit and City models sold at around 100,000 yuan in the domestic market before the price dive, while prices of Accords and Odysseys varied from 200,000 yuan to 300,000 yuan depending on the motorization and the level of in-board equipment.

The two automakers' move forced down the prices of mid-range cars, but some high-end models cruised on unaffected, with buyers required to pay reservation fees of between 2,000 yuan to 20,000 yuan, according to the China Securities Journal.

The report says fierce competition leading to price undercutting is a normal phenomenon among automakers and an auto price war was yet to come.

Analysts said dealers' efforts to speed up sales before the end of the year -- in order to extract more sales commission from manufacturers -- was a factor in the looming price war.

The release of a spate of new models has given customers a wealth of options, pressuring auto dealers to sell old stock.

Statistics show that automakers rolled out an average of 10 new models each month this year. Some carmakers have launched new models in the last two months, trying to warm up the market for next year, according to the report.

Another factor forcing down the prices of some models is the upcoming On-Board Diagnostics (OBD) standard, an emission standard requiring cars to be equipped with an OBD system that controls engine functions and diagnoses engine troubles, said analysts.

Auto dealers are rushing to sell cars that do not have the OBD system before the standard comes into vigor in Beijing in December and in Guangzhou in January 2007.