BEIJING Aug 13 An anti-trust probe into global
auto makers is being cheered on by car dealers in China, who say
that companies such as Audi and Mercedes-Benz have been
exploiting their dominance to boost profits in ways that would
not be tolerated in Western markets.
Foreign brands including Jaguar Land Rover,
Volkswagen AG's Audi, BMW and
Mercedes-Benz are scrambling to lower prices for both
new cars and spare parts in an effort to appease Chinese
regulators who have accused some of them of anti-competitive
As well as charging higher prices in China than consumers
pay elsewhere, some dealers say foreign luxury marques have also
been running quasi-monopolies on even generic spare parts and
accessories such as tyres, engine oil and aluminium wheels.
"High-margin new car business pretty much dried up in China.
That means if you procure other things you sell at the
dealership the way the automaker dictates, you cannot possibly
make money," said Yale Zhang, head of Shanghai-based consulting
firm Automotive Foresight.
"Automakers slap high margins and kick up wholesale prices
dealers pay - so high that there's really no room for you as a
dealer to play with and maximise profit."
An array of industries have been coming under the spotlight
as China intensifies efforts to bring companies into compliance
with its anti-monopoly law enacted in 2008.
The auto sector has been under particular scrutiny, and the
National Development and Reform Commission (NDRC), China's state
planner, has been investigating the industry amid accusations by
state media that global car makers are overcharging consumers.
Industry experts say automakers have too much leverage over
car dealers and auto part suppliers, enabling them to control
prices, considered a violation of China's anti-trust laws.
PRICE FIXING PROBE
The NDRC, which regulates pricing activity, said on Aug. 6
it would punish Audi and Fiat SpA's Chrysler for
monopolistic practices, a ruling that could see the car makers
fined up to 10 percent of their sales revenue in the world's
biggest auto market.
The NDRC gave no details, but an Audi dealer executive said
the regulators' investigation, focused on the central province
of Hubei, was in part about alleged price-fixing.
"The whole affair was instigated by the manufacturer, and
everybody had the same price for some parts and car models in
the region," the executive said.
An Audi spokesman in Beijing confirmed that the sales arm of
the brand's China joint venture with state-owned FAW Group had
"partially" violated China's anti-trust laws in Hubei and would
accept a penalty when it was formally levied.
The spokesman said Audi "would not be able to comment on
details as to the size of the penalty or the precise nature of
the violation, until the final conclusion of the investigation
Audi is by far the most successful foreign premium car brand
in China, favoured by both state officials and entrepreneurs.
German luxury rival Mercedes-Benz is also under
investigation for alleged price fixing, according to a senior
executive at one of China's biggest Mercedes-Benz dealer chains.
The executive said a 10-hour raid by NDRC investigators on
Aug. 4 at the Mercedes-Benz east China sales office was partly
about collecting evidence of possible price-fixing on new cars
and spare parts by the German brand and its dealers.
His knowledge of the probe stemmed from the fact that one of
his dealerships was raided on the same day, he said.
Beijing-based Mercedes-Benz spokesman Senol Bayrak said it
was cooperating with China's anti-monopoly authorities, but
declined to comment further because the investigation was "an
China's anti-trust authorities have taken aim at industries
as varied as pharmaceuticals and electronics in recent months.
Foreign milk powder producers were fined in 2013 for
colluding in setting prices for their products, and regulators
named U.S. chipmaker Qualcomm Inc as a monopoly last
month and are widely expected to levy a heavy fine.
Agency investigators also raided Microsoft Corp's
offices in four Chinese cities.
Some foreign firms and others, including the American
Chamber of Commerce in Beijing, have argued China's real intent
is to give its homegrown players a competitive edge.
But China insists that the probes are intended to protect
Chinese consumers and companies.
In the auto sector, regulators are also zeroing in on the
high prices global auto brands charge for replacement parts -
and the way they get dealers to accept those terms.
According to the head of a large BMW chain, manufacturers
exert tight control over independent vendors to enable them to
charge high margins and inflate wholesale prices.
"BMW controls every aspect of our dealer operations...
compelling us to procure everything from them or through them -
including engine lubricant oil, tyres and window-tinting films,"
the executive said.
BMW did not respond to Reuters' requests for comment.
The BMW dealership executive said that, while dealers agreed
with automakers that it was in consumers' interests to provide
maker-certified components for maintenance and repairs, they
might prefer to buy generic items from other suppliers.
"Any way to boost our profit margins," which he said had
slipped to 1.5 to 2 percent on a gross basis in recent years due
to aggressive discounts and sales incentives to maintain
Still, his stores were prevented by tight
manufacturer-dealer agreements that set sales performance
objectives for even those generic items.
"If you don't make those targets, you stand to lose very
generous rebates and bonuses BMW pays periodically," said the
dealer. Those rebates and bonuses, he said, are often an
essential source of profitability for car dealers operating in
China, where a slowdown in the country's once red-hot auto
market, even as more premium auto brands pile in, has made the
"We mostly lose money selling new cars and make it all up by
achieving sales goals and getting bonuses and rebates from the
factory when they feel generous," the BMW dealer executive said.
Auto manufacturers and their brands exert power over dealers
in markets around the world, and it was not immediately clear
whether using contractual agreements or sales performance
objectives to compel dealers to buy readily available generic
components and products from or through the company would be
outlawed under competition rules in more developed markets.
But in advanced markets such as the United States, retail
store operators have given themselves more clout in dealing with
manufacturers by establishing brand-by-brand dealer
associations, which are still being formed and developed in
In the United States, the agreements between the dealers and
the manufacturers are also driven by state franchise laws that
give dealers more influence and freedom in procuring spare parts
from multiple suppliers, said Daron Gifford, a partner with
industry consultant Plante Moran.
"In China, the manufacturers do have a lot more
power," Gifford said.
(Reporting By Norihiko Shirouzu in Beijing; Additional
reporting by Bernie Woodall in Detroit; Editing by Alex