Foreign carmakers under pressure to cut prices in China

Government anti-monopoly probe and market forces turn up the heat on industry players

PUBLISHED : Monday, 04 August, 2014, 3:40am
UPDATED : Monday, 04 August, 2014, 4:33am

More foreign carmakers are expected to cut prices under pressure from anti-monopoly investigations by mainland regulators, with market forces expected to play a bigger role in pricing as competition intensifies.

Price cuts on new models, after-sales service and spare parts would continue in the wake of the government's anti-monopoly probes, said Shen Jinjun, an executive vice-chairman of the China Automobile Dealers Association.

"While market competition intensifies as consumers react to new prices, market forces will bring down prices," Shen said.

Some foreign luxury car makers have already announced price cuts. Effective this month, Jaguar Land Rover, the premium car unit of India's Tata Group, reduced the prices of three popular models by an average of 200,000 yuan (HK$251,000) each.

The adjustments were in response to investigations into the car industry by the National Development and Reform Commission's anti-monopoly unit, the carmaker said.

Volkswagen's luxury brand Audi also announced reductions in spare-part prices. A company spokesman said Audi, which operates mainland joint venture FAW-Volkswagen, supported the NDRC's efforts to investigate pricing in the after-sales area.

German premium carmaker BMW declined to comment on whether it had plans for price reductions.

The NDRC's price supervision and anti-monopoly unit started collecting evidence in February as foreign carmakers were alleged to have overcharged on products and spare parts, taking advantage of their dominant position.

The price cuts would stir up competition, which in turn would benefit consumers, said Geoff Broderick, a vice-president for Asia-Pacific at consultancy JD Power.

"Not to let one side determine prices but let market forces determine prices. At the end of the day the best thing for consumers is competition," Broderick said.

The price cuts would also put pressure on domestic carmakers, but Broderick said it would be a double-edged sword that forced home-grown brands to boost efforts in image building and after-sales services.

Chen Zheng, an analyst at brokerage China Securities, sees Jaguar's price reduction as only symbolic as it could be partly offset by reducing discounts offered to customers.

But Audi's price cuts for spare parts showed premium carmakers were moving the battlefield from frontline retail sales to after-sales service.

Mercedes-Benz, the premium brand of German carmaker Daimler, last month also cut service charges and spare-part prices by up to 20 per cent.

Zhou Xiaobo, the founder of car dealer Betterlife Group, said competition in the market had been fierce even before the anti-monopoly probe brought about price reductions.

"Today, the car market is moving to be more market-oriented. Without competitive after-sales service and reasonable pricing, you will eventually lose your customers," Zhou said.