China takes aim again at luxury car makers

Parallel import scheme to launch in free-trade zone in bid to rein in high-end vehicle prices

PUBLISHED : Thursday, 05 February, 2015, 10:29pm
UPDATED : Thursday, 05 February, 2015, 10:30pm

The mainland is taking aim again at foreign luxury car makers such as Audi, BMW and Mercedes-Benz by allowing unauthorised dealers to sell imported cars - so-called parallel imports - in a move to rein in high-end car prices.

Publicly, Beijing says a pilot scheme, which starts in Shanghai's free-trade zone next week, will promote competition and give consumers more choice, but people close to policymakers say it is the latest in a series of measures aimed at bringing down prices that are far higher in China than elsewhere.

For the luxury car marques, the move comes on top of weakening sales growth in the world's biggest market, tensions with dealers, and a recent price-fixing probe.

A lawyer who attended a closed-door seminar last year said officials at the Ministry of Commerce and the National Development and Reform Commission made clear their intention was to cut the price of high-end imported cars.

"Legalising parallel imports is part of a broad anti-monopoly campaign by the government to improve market order and bring down prices of imported cars," he said.

The China Automotive Technology and Research Centre, a government-affiliated think tank, lobbied Beijing a year ago to legalise parallel imports "to break monopoly and promote competition".

Sales of premium cars rose by more than 20 per cent last year to about 1.6 million vehicles, according to consultancy Automotive Foresight (Shanghai), but still account for less than 10 per cent of car sales in the country.

Together, Audi, BMW and Mercedes have 70 to 80 per cent market share in the premium segment.

More than 20 dealers have applied to join the pilot scheme, where imported luxury models will be sold at a 10 to 20 per cent discount to those available through authorised channels, an official at the Shanghai Waigaiqiao Automobile Exchange Market said.

A BMW 650i xDrive convertible that sells from US$97,900 in the United States can cost more than three times as much in China. That scale of price differential has come under fire from the Chinese media, and regulators last year fined a domestic venture of Audi and the sales unit of Fiat's Chrysler a combined US$46 million for price fixing.

The mainland has had a grey market in car sales for some time, mainly in Tianjin, where about half of its car import deals are done. But buyers have been cautious given the lack of quality guarantee and after-sales service on unauthorised cars. That will change under the new scheme.

"The main significance [of the pilot scheme] is that buyers will now be legally entitled to warranty packages," whether their imported car came through an authorised or unauthorised channel, IHS Automotive analyst Namrita Chow said.

Analysts said it was difficult to gauge the impact on car prices given a lack of clarity over which models would be included in the parallel import scheme.

Audi said its dealer network on the mainland was "very well prepared for competition", while BMW said it did not expect any "substantial" impact on its business. Daimler, which owns Mercedes-Benz, said it was too early to comment.