Carmakers found to be overcharging Chinese consumers

Our Department of Trade and Industry can learn a thing or two from the National Development and Reform Commission (NDRC), China’s top economic planning agency, which found foreign carmakers to be overcharging Chinese consumers in violation of antitrust rules. The NDRCC penalized those found guilty after a thorough investigation, resulting in the lowering of auto parts prices, thereby benefiting consumers.

On August 4, Daimler, the maker of Mercedes-Benz cars, announced an average 15-percent price cut of repair parts sold in China “in response to antimonopoly investigations into the automobile industry” by the NDRC that enforces antimonopoly and pricing rules. The next day, however, the regulatory agency searched Daimler’s offices in Shanghai again. Daimler spokespersons confirmed the renewed scrutiny and the company’s cooperation and assistance with the authorities in their investigation, but declined to comment further. Xinhua, the state-run news agency, reported last month that Mercedes-Benz has been found guilty of manipulating prices for after-sales service in China.

The NDRC also said it would punish Audi and Chrysler for monopoly practices. Chinese government regulators are citing an antimonopoly law passed in 2008 to question whether multinational companies overcharge businesses and consumers for goods sold at a lower cost in other markets.  Since China is a lucrative market for foreign automobile manufacturers, especially those selling higher-end cars, pressure on their pricing could hurt earnings. Any problems in China could be a setback for Daimler, which has to fight for market share with competitors Audi and BMW.  China is the third biggest market for Mercedes-Benz cars after the United States and Germany and is the fastest growing of the three, with a 13-percent jump in sales to 68,000 cars in the second quarter in China compared to a year earlier.

COMPLAINTS. Pressures on foreign automakers are increased by the austerity campaign of President Xi Jinping’s government attacking official spending on cars and other perks.  Since 2013, Chinese television and newspaper reports have also aired complaints that foreign carmakers overcharge Chinese consumers in particular, with CCTV, the main state broadcaster, airing a report that accused these companies of grossly inflating the prices of parts.

On Aug. 12, a day after Audi said the dealership network of its Chinese joint venture in the province had broken antitrust rules and would be penalized by the government, General Motors disclosed that it had been contacted by Chinese authorities as part of a broadening antitrust investigation into foreign automakers.  The Chinese authorities have been scrutinizing many automakers this summer to determine whether automakers have compelled their dealers to set high, standardized prices for replacement parts that the carmakers produced.

Last April, the Insurance Association of China and the China Auto Maintenance and Repair Association claimed that replacing each part in a Mercedes C-Class sedan would cost 12 times as much as buying a new car.  After Chinese antitrust regulators searched the offices of Daimler, the German maker of Mercedes-Benz, in early August, Daimler declined to discuss the cost of replacement parts for C-Class sedans.

COUNTER. GM tried to counter criticism by saying that replacement parts in the average Cadillac was 330 percent of a new model, while for Buicks the cost was 284 percent and for Chevrolets it was 265 percent.  In a statement in Chinese on its website, Shanghai General Motors, GM’s main Chinese subsidiary, said that it had been supplying information to the NDRC and has always actively supported and cooperated with all the surveys and research work carried out in the auto industry by the NDRC’s price monitoring and antimonopoly bureau.

Meanwhile Audi, a unit of Volkswagen, said in a statement on Aug. 11 that the dealership network in Hubei province of the FAW-Volkswagen joint venture had violated national antimonopoly laws, but the joint venture has closely cooperated with the investigation and will accept a penalty.  Audi added that management processes in the sales and dealership structure are being improved to prevent similar incidents in the future.

In response to intensified regulatory scrutiny over antitrust issues, Toyota Motor announced on Aug. 21 that it would reduce by an average 26 percent the prices of about 15,000 auto parts for its luxury Lexus models in China.  The price cuts will start from Sept. 1, the Lexus website in China said, adding that the company will ensure full compliance with the Chinese law.  Toyota’s move came a day after China fined 12 Japanese auto parts makers a record $195 million for manipulating prices.

TAXES. The higher prices of cars in China compared to other markets can be traced to the steep taxes that China imposes on cars, auto executives and analysts say.  But even without these taxes, cars in China are still a bit more expensive than in other markets because sales of cars and light trucks have soared more than tenfold in China since 2000, producing frequent shortages of popular models.  China’s taxes on imported cars, which are much higher than in most major markets, have discouraged automakers from trying to meet demand in China by importing vehicles from their operations elsewhere.

The more energetic enforcement of antitrust rules by China has affected not only carmakers, but also large companies like Microsoft, Qualcomm, Accenture, GlaxoSmithKline, other foreign pharmaceutical firms and half a dozen manufacturers of infant formula. But not all foreign auto manufacturers have been targeted so far in China.  The China division of Ford indicated in a statement that they were aware of the ongoing government investigation in the auto industry and “will fully support and cooperate if and as required.”

Source: The International New York Times