As China’s first Anti-Monopoly Law went into force on August 1, 2008, it is expected to help provide a better environment of automobile sales, distribution and aftersales service.
OEMs will no longer be able to demand that their dealers set a minimum sales price for their vehicles because it is clearly stipulated in Item 2 of Article 14 that “Business management is prohibited from setting minimum sales price for dealers in selling merchandise to third parties.” A number of automobile dealers in China, including those of Guanghzou-Toyota and Guangzhou-Honda, are already rushing to unload their increased inventories at prices below manufacturers’ suggest retail prices.
The new law will also prohibit OEMs from dividing sales regions for dealers as Item 3 of Article 13 reads: “Business management is prohibited from dividing sales and distribution regions or the sources of raw materials.” With the new law becoming effective, automobile dealers are permitted to sell vehicles outside of their geographical regions.
One other positive outcome of the Anti-Monopoly Law is that regional governments will no longer be able to favor sales of locally manufactured automobiles such as designating local taxi fleets to select local makes.
With the enforcement of the new law, the country’s Administrative Methods on Automobile Brand Sales and Distribution is directly challenged because the Administrative Methods mandates that automobile sales must be authorized by OEMs. This may be in direct conflict with Article 37 of the Anti-Monopoly Law which states that “Government administrations are not to abuse their administrative power in drafting regulations that exclude or restrict competition.”
No doubt the new Anti-Monopoly Law will help create a more equitable relationship between dealers and OEMs and consumers in China stand to benefit from a more competitive market place. Although at first look OEMs seem to be losing some control over dealers, they will also benefit from the new law from a long-term point of view. Increased competition will force OEMs to produce better products with more affordable prices that will drive up sales. With competitive products, the most successful OEMs will be those that guarantee fair margins for dealers.
Even though the Administrative Methods on Automobile Brand Sales and Distribution will be revised, it does not mean that franchised dealership system, or what is locally referred to as 4S dealerships, will disappear. As an international practice, franchised dealerships are a proven and mainstream automobile sales and distribution mechanism that should work well in China.
What the Anti-Monopoly Law will help bring about is the revival of other forms of automobile sales that until most recently did not have to be authorized by OEMs, such as automobile marts in major cities, individual dealerships and importers. With multiple channels in sales and distribution, a more open market will be created with better choices for consumers.