Government decision likely to end monopoly in automobile sales

by Wayne Xing   2014-08-06

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The General Administration of Industry and Commerce (GAIC) announced on August 1 that as of October 1, 2014, it will no longer accept filings of business licenses for franchised automobile dealerships.

The business scope of future dealerships will be “automobile sales” instead of “XXX brand automobile sales.”

The GAIC’s decision comes in the middle of an anti-monopoly campaign led by the country’s National Development and Reform Commission (NDRC), China’s consumer pricing watchdog. Leveraging China’s 2008

Anti-Monopoly Law, the NDRC has launched unannounced investigations in a number of foreign automakers and importers such as Chrysler, Audi, Mercedes-Benz, Jaguar Land Rover and Japanese suppliers and has concluded that the companies have been engaged in “monopolistic behavior” of jacking up prices of automobiles and replacement parts and components.

A number of foreign automakers have announced to lower the prices of their imported vehicles and replacement parts in response to the official investigations. On August 3, for example, Mercedes-Benz cut prices of replacement parts such as windshields and pumps for power steering by up to 29 percent. Audi announced cuts of up to 38 percent in pricing in July. On August 5, Chrysler announced a 20 percent price cut for its Grand Cherokee SRT8 and Grand Cherokee 5.7L models.

Based on fines of between 1-10 percent of sales revenue of the previous year stipulated in the Anti-Monopoly Law, foreign automakers may be subject to hundreds of millions of RMB if found guilty.

“Chrysler and Audi have been found guilty of monopoly behavior and will be punished accordingly,” said NDRC secretary general Li Pumin at a press conference on August 6. Li also said that his agency is further investigating if Mercedes-Benz is involved in monopoly behavior.

The NDRC has completed investigation of 12 Japanese companies involved in the monopoly of automobile parts, components and bearings, Li said, and “they will be punished accordingly.”

Analysts believe that the GAIC’s decision in the midst of the government’s anti-monopoly campaign is a signal that the revised “Administrative and Implementation Rules of Automobile Brand Sales” released in 2005 by the Ministry of Commerce may soon be revised or even abolished. This regulation has given automobile manufacturers a monopolized position in sales of automobiles as well as replacement parts and components, which is in direct conflict with the country’s Anti-Monopoly Law promulgated in 2008.

Despite claims by some that the NDRC’s anti-monopoly investigation is “politically motivated” and targeting foreign automakers, it has been an established fact that imported automobiles, especially luxury cars and their parts and components, are priced in China several times higher than their sale prices overseas.

The fundamental reason for the GAIC decision to discontinue “XXX brand automobile sales” as well as the current anti-monopoly campaign is to “safeguard consumer rights and interests and insure fair competition in the market.”

If franchised automobile sales discontinues, China’s automobile market will undergo a major change involving the entire value chain of automobile production, sales, distribution and the aftermarket.

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1. Mr. Lawrence Driscoll write: (8/7/2014 1:43:30 PM)

“safeguard consumer rights and interests and insure fair competition in the market.” But it is in the interest of the consumer to do business with a store dedicated exclusively to the brand he has purchased.