Chinese anti-monopoly investigation of the automotive indust

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The National Development and Reform Commission's anti-monopoly investigation continues to make waves in the automobile industry. The NDRC has already fined 12 Japanese manufacturers a total of 1.24 billion RMB ; 831.96 million RMB in fines were directed at eight automotive part manufacturers and the remaining 403.44 million RMB was targeted at four Japanese axle bearing manufacturers, including NHK.

The anti-monopoly crackdown of the Chinese automobile market is destined to be one of the major industry events of 2014. The investigation is targeted at ending monopolistic practices and reducing excessive automobile prices in the industry. However, many automobile dealerships and many own brand manufacturers doubt that the investigation will actually achieve this goal.

Earlier this month, the Jiangsu Price Bureau announced that it had already obtained relevent evidence in its investigation of Mercedes-Benz showing that the manufacturer has engaged in price monopoly practices for its automotive parts and after sales services. Prior to this, Audi had already admitted to engaging in monopolistic behavior and announced that it is willing to accept any legal penalties.

A dealership representative attending the recent Chengdu International Motor Show shared his perspective: "Looking at the present state of affairs, manufacturers are only reducing the prices of poorly selling or already overpriced automobiles. As a matter of fact, market conditions already dictate that manufacturers which don't actively reduce their prices will see their sales fall. Also, the only automotive parts that are having their prices reduced are generally those that don't need to be replaced anyway."

The Hubei Province Price Bureau has also conducted an investigation of four BMW 4S dealerships in Wuhan. During the investigation, the Bureau came to the conclusion that the dealerships had engaged in monopolistic price fixing; they have been fined 1.63 million RMB in cash. The penalties have surely gained the attention of several other 4S dealerships in the country.

Furthermore, many manufacturers have been accused of passing on the costs they are suffering to dealerships. Representatives from several dealerships, including those selling Mercedes-Benz and Volvo automobiles, have admitted that manufacturers have only slightly lowered the prices at which they supply parts from dealerships, leaving them to suffer the brunt of the costs.

A representative from a luxury automobile 4S dealership in Sichuan explained the plight of dealerships, stating that dealerships are merely following the provisions stated in the Automobile Brand Sales Management Measures. The representative advocated that automobile manufacturers should be the main target of the investigations. The representative explained in detail: "Currently, dealerships are having a very hard time conducting business. New car sales generally don't bring in any profits, [so dealerships] have to rely on after sales services."

Aside from dealerships, many analysts worry that the anti-monopoly investigations may inadvertently harm the sales of own brand manufacturers. As prices of foreign automobiles and automotive parts decrease, they will compete alongside more economically-priced own brand models. When asked whether or not he agrees with that statement, Changan Automobile President Zhang Baolin answered that they absolutely will. However he added that own brands will be forced to produce more competitive products.

An industry analyst added that the existing legislation favors manufacturers over dealerships. Manufacturers rarely look out for the livelihood of dealerships after selling vehicles to them. The analyst added that the legislation may lead to decreasing prices for automobiles, automotive parts and after sales services, at the same time boosting sales.

Since July, several major players in the automotive industry have been found guilty by the investigations of engaging in monopolistic activities. Among them, Audi and Cadillac, as well as 12 Japanese auto part suppliers, are facing stiff penalties. Many manufacturers have responded by lowering the prices of their automobile and auto part products./

China Association of Automobile Manufacturers Deputy Managing Director and Deputy Secretary General Dong Yang explained his prospects for the automobile market following the policies: "Having manufacturers reduce prices is of course good news, as the prices for imported and luxury automobiles are very high. At my time at BAIC, dealerships would be willing to sell imported Mercedes-Benz vehicles, but were not fond of selling Beijing Benz vehicles. Why you ask? Because imported vehicles were very profitable."

However, Mr. Dong made sure to emphasize that the luxury automobile segment is separate from the rest of the market. As such, the result of the policies on the overall automobile market will be somewhat limited./

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