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 Brands including Volkswagen AG's Audi, BMW and Mercedes-Benz
are cutting prices for new cars and spare parts in an effort to
appease Chinese regulators which have accused some of them of
anti-competitive behavior.
Daimler, the parent company which makes the luxury Mercedes-Benz
cars, said on Monday it was cooperating with authorities and
declined to comment further.
An array of industries, from milk powder makers to electronics
firms, has come under the Chinese regulatory spotlight in recent
years as the government intensifies its efforts to make foreign
companies comply with 2008 anti-monopoly legislation.
Anti-trust regulator, the National Development and Reform Commission
(NDRC), launched an investigation into the auto industry following
domestic media complaints that foreign carmakers were overcharging
Chinese customers for vehicles and spare parts.
The Xinhua report, which cited regulators, made no mention of
possible penalties for Mercedes. The regulator can impose fines of
up to 10 percent of a company's China revenues for the previous
year.
Analysts at JP Morgan said the willingness of the German
manufacturers to lower prices in China reduces the possibility of
high fines but in the longer term could hit profitability.
Mercedes-Benz recently announced that it would reduce prices on some
spare parts by an average of 15 percent and BMW said it would cut
prices by an average of 20 percent, JP Morgan said. Audi has also
said it will cut prices but did not specify by how much.
In the longer run, forcing European carmakers to lower the price of
spare parts and imported vehicles could see margins in China
normalize to levels currently seen in Europe, JP Morgan said in a
note earlier this month.
"We believe that this might happen gradually over the next five
years or more," the brokerage said, adding it sees an impact on
earnings per share of around 3 percent for German carmakers.
They said that if the price of spare parts and services fell 20
percent in China, Daimler and BMW's pretax profit would take a hit
of around 1 percent in 2015, and Volkswagen's pretax profit would
fall by just under 3 percent.
ANTI-COMPETITIVE PRACTICES
The Jiangsu Province Price Bureau found evidence of anti-competitive
practices after raiding Mercedes-Benz dealerships in the eastern
coastal province and an office in neighboring Shanghai, Xinhua said
in its report on Sunday.
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The European Chamber of Commerce in China has expressed concern that
European companies were being unfairly targeted and were discouraged
from appealing against fines.
"The European Chamber has received numerous alarming anecdotal
accounts from a number of sectors that administrative intimidation
tactics are being used to impel companies to accept punishments and
remedies without full hearings," it said last week.
Critics however say automakers have too much leverage over car
dealers and auto part suppliers in China, enabling them to control
prices.
The Xinhua report said the cost of replacing all the spare parts in
a Mercedes-Benz C-Class could be 12 times more than buying a new
vehicle, citing a report from the China Automotive Maintenance and
Repair Trade Association.
Earlier this month the NDRC said it would punish Audi and Fiat SpA's
Chrysler for monopoly practices. Executives at Toyota Motor Corp
said the government was looking into the auto parts policies of its
premium brand, Lexus.
Chinese media reported last week that Audi, the best selling foreign
premium car brand in China, would be fined around 250 million yuan
($40.7 million).
Foreign car brands, all of whom operate in China through joint
ventures with a local partner, have been fiercely competing to up
their share in the world's largest car market.
Daimler has said that it wants to boost China sales of Mercedes-Benz
cars to more than 300,000 cars a year by 2015, while Audi expects
China to make up 40 percent of its sales by 2020.
(Additional reporting by Edward Taylor and Andreas Cremer; Editing
by Erica Billingham)
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