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Luxury Cars October 2013

Consumer protection laws in China are a long way behind the market, which as might be expected is a result of the huge economic growth and consumer spending in the past ten years, and a bureaucratic system that isn’t really set up to support this area. The introduction of any protection is often initially very weak and full of loopholes resulting in consumers gaining very little benefit, and the sellers continuing to do as they have always done. The latest consumer protection regulations as related to cars, are a good example of the state of the law in this area.

The ‘3R regulation’ for vehicle’s came into force on October 1st, and covers repairs, replacement or return. Nicknames the “three guarantees” in Chinese, and was issued by the General Administration of Quality Supervision, Inspection and Quarantine. Although the media has claimed that consumers warmly received it however, some insights would lead us to this that its real value to anyone buying a car was very low.


The 3R benefits

The conditions for replacement or return of a car are very strict under the new regulation and common issues here in China like brake or steering failures are not included. Only cars that suffer serious quality problems within the first 30,000 kilometers and that are unable to be resolved within two repair visits, meet the conditions. In all the ‘Warranty’ cases, return and replacement would only account for a very small minority of cases, the principal solution being maintenance at a 4S dealership.

In addition, the regulation also requires dealers and manufacturers need to reach an agreement on the matter, and an authorized appraisal to be given by a credible third party accreditation organisation. The fact is that in China, auto identification organizations are few in number, and most of them are directly connected to the manufacturers making ​​the appraisal unreliable. Even if an appraisal was deemed as reliable, its findings are only given to the manufacturer and owner as reference so that they can mediate a solution.

The funeral of a Porsche

An example of consumers still finding it difficult to protect their rights, is a ‘Porsche’s funeral’ held outside a Porsche 4S shop on 21th September in Changsha.

On 27th April 2013, a consumer had an accident driving his Porsche Cayenne on the highway.
In May according to the local media, the Hunan University Judicial Identification Center made an assessment of the vehicle in front of the consumer and Porsche technical staff that confirmed that the car engine had stopped before the crash occurred. This resulted was of course a dramatic loss of speed, in addition to a loss of braking and steering power which was the cause of the actual accident.

Soon afterward this claimed examination, Porsche China made a statement, saying that it did not agree with the assessment claiming that the engine stopping was an illusion of the driver, and that staff of Hunan University Judicial Identification Center had been unprofessional and did not understand the systems of Porsche cars. Almost five months later, the new 3R regulation took effect, but no resolution to the accident has been confirmed. This led to the consumer hold a funeral for his cayenne in front of the 4S store! Clearly, stories like this may have a negative impact in terms of PR for the brand in terms of quality and after sales service, and given the increasing number of cars on China’s roads, and a slowing of the purchase of new vehicles, we may expect to see many more cases of consumers claiming against car manufacturers rather than maintaining their cars correctly.

One thing we are confident is that this issue must have a impact on the brand, and those who are potential consumers may stop buying Porsche in worrying their own safety and brand’s after service. Especially, luxury brands who disregard brand building will affect development in the long-term, Lamborghini maybe one of them.

Supercar sales are down

The general sales of luxury cars in China are declining, particularly in the supercar category as existing owners decide not to upgrade for financial reasons, Lamborghini being one of them. Its CEO Stephan Winkelmann, reduced the sales target in China in 2013 from 230 to 200, while competitors like Maserati and Ferrari claimed to have sold well in the first half of the year. Yes, the new government regulations associated with lavish purchases may have had some impact, but in Lamborghini’s case, quality is also an issue.

Engine fires are not uncommon for Lamborghini owners the world over, In March this year one ignited in Shenzhen, in September the issue repeated in Beijing. Unfortunately the brand seems to care little for its Chinese customers, with or without a 3R regulation, the brand neither made any form of statement, or issued and PR on the matter. No doubt slowing sales are not helped by this attitude.

Maserati buck the trend

Maserati now claim that China is its largest market in the world, and sales of the Quattroporte are particularly strong. Why? Our analysis would be firstly that out of all the brands operating in this category, they were the only one to open two new dealerships in the past six months. But perhaps more importantly, they have been able to leverage the changing attitude of the luxury supercar buyer. If you already have a supercar, then buying another probably doesn’t make practical or economic sense, yet you like the supercar feel, but need to be pragmatic. The answer is a four-door car that is based on a Ferrari, sounds like a Ferrari but seats a family and is far more suitable for driving every day in China than a Ferrari. The brand can talk about being less brash, more understated and more practical, but with real racing heritage, and if you want to take it round a track at the weekend you could do.


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