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Jun
2015

Luxury Cars August 2014

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Anti-monopoly investigation triggers luxury car price reductions

On 5th August, the Chinese media reported that the Government was investigating the monopoly of the Mercedes Shanghai office, previously Chrysler and Audi had been found guilty of operating a monopoly before Mercedes and are likely to be punished, the brands are being investigated principally for:

  • Manipulating the finished vehicle price
  • Manipulation of spare parts and regular maintenance prices in 4S stores

The monopoly is actually as a result of the “The implementation of management measures of automobile brand marketing” a government policy established in 2005. According to the policy, car brands must establish a general agency to manage the sales networks in China; all dealers must be authorized by the general agency and import their cars or parts via and through it. The purpose of the policy was to facilitate management and avoid market chaos, but as a result, the general agency was able to control the retail price and the authorization of the dealers which meant the manufacturer controls everything throughout the entire industry chain and as a result attained profits that are far above the normal levels expected overseas.

Currently, many high-end and luxury car brands such as Jaguar Land Rover, Jeep, Mercedes, BMW and Audi have all made big announcements saying they will reduce their sales prices in order to make both Government and consumers happy. Most of those models with price reductions within this period are the advanced configuration vehicles and not the base units, the approach has aimed to reduce:

  • Finished vehicle prices
  • Spare parts prices
  • Regular maintenance prices

For example, the Range Rover Sport 5.0L V8 list price officially decreased 162,000 RMB ($26,000). Two Range Rover long-wheelbase models decreased by 240,000 RMB ($39,000) and 300,000 RMB ($49,000) respectively. Three Jaguar F-TYPE cabriolets decreased by 200,000 RMB, 200,000 RMB and 50,000 RMB respectively. On the surface these reductions are huge, however when buying a car even at a reduced price, consumers still need to pay a great deal of money. Compared to the pre reduction time, the only difference in the buying process is that consumers will be paying lower vehicle purchase tax and insurance than before.

“Without any official announcement from the brand, consumers could still get 200,000 RMB discount by negotiating with the 4S store. The announcement just brings the private discount offered by a dealer into the public domain. In reality, the actual price hasn’t changed.” According to Mr. Xu, a 4S store staff member.

When dealing with the monopoly accusations, BMW China announced a decrease in wholesale prices of more than 2,000 original factory parts, such as body parts, compressors, generators, batteries and brakes. The average reduction across all the products has been 20%. Among them, body parts dropped by 45%, generators 40%, batteries 25% and brakes reduced by 20%. Unlike Audi and Mercedes, the BMW after-sales maintenance charges are relatively low which may help the brand deflect the monopoly suspicions related to controlling the distributor’s sales price.

Mercedes announced that for the benefit of its consumers, it will reduce the overall cost of after-sales maintenance by 30% in China. According to Feng Jun, Deputy Director of the China Automotive Maintenance and Repair Trade Association “Mercedes actually only reduced the price by 14% for after-sales maintenance and not 30% as it claimed. The gap shows that Mercedes wants to use PR to enhance brand credibility among consumers and to change its image in the eyes of the government.”

With the more thorough anti-monopoly investigation, the price of luxury cars, parts and maintenance are likely to decrease in future. It is also expected that supervision measures will be more stringent in the Chinese auto market. Now for the automobile brands from the United States, Japan and Europe, their emergency response should be taken immediately. Consumers maybe happy and grateful for the investigation, and enjoy the benefit it brings.

However, insiders know that the price reduction is a temporary strategy implemented by the brands in response to the government probe, and that the price reduction doesn’t change the fact that a monopoly, still exists. Therefore, only by revising and perfecting the legal system, intensifying supervision and the punishment delivered to a monopoly, could the current system be broken and that a reasonable luxury car price might be established in China in the future.


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