Experts urge changes to curb foreign carmaker profiteering

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Experts urge changes to curb foreign carmaker profiteering

(Xinhua) 18:43, August 23, 2013

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Industry experts have called for revision of China's auto market regulations to stop foreign automakers from profiteering from price-rigging, especially in the luxury car segment.

Zhong Shi, an expert committee member of the China Automobile Dealers Association (CADA), told Xinhua in a recent interview that the government should rewrite the Guideline on Car Sales Management so as to loosen grips on prices by foreign carmakers, who are accused of gaining exorbitant profits by setting minimum car retail prices.

The regulation, promulgated in 2005, requires foreign carmakers in China to set up their own sales companies to handle the import, sale and maintenance of their car brands in the country.

Previously, foreign cars were imported to China by authorized trade companies.

Zhong said the change in practice has enabled foreign carmakers to monopolize car sales and have the final say in car prices.

Some foreign car brands, luxury models in paricular, have long been accused of being priced extremely high in the Chinese market, and industry insiders said price-rigging by foreign car companies is to blame.

A Land Rover Discovery, sold at about 50,000 U.S. dollars abroad, can fetch a retail price of 1.19 million yuan (192,000 dollars) in China, almost four times the overseas price.

China levies heavy duties and taxes on imported foreign cars. Tariffs on cars brought into China from abroad are 25 percent for any car model. On top of that, there is a value-added tax of 17 percent and a consumption tax, which can reach 40 percent, depending on the engine size.

Gao Jihua, import director of Shanghai Automobile Import and Export Co., Ltd. said combined tariffs and taxes on an imported car are usually no more than 1.5 times the car price. However, many luxury brands are sold at more than three times their price abroad.

"It is clear that the sales companies of these brands have gained exorbitant profits," Gao said.

Gao, who has been in the auto import business for over two decades, said it has long been an industry practice for foreign carmakers to fix minimum retail prices for China's 4S dealers.

Wei Shilin, an anti-monopoly lawyer with Beijing-based Dacheng Law Offices, said car manufacturers do have the right to set up price guidelines for their products, but they are not allowed to fix retail prices. " It is a monopoly if they fix minimum retail prices for their 4S dealers, Wei said.

Apart from car sales, foreign carmakers also gain high profits by fixing prices of auto parts and components at 4S dealers, Zhong said.

He suggested that China's auto policies should encourage and support the establishment of individual auto repair workshops as well as parts and components traders to compete fairly with 4S dealers.

Jia Xinguang, an independent auto industry analyst, pointed out that the irrational consumption habits of some of the newly rich in China, who spend on luxury cars to show off their wealth, were also to blame for enticing foreign carmakers to stick with the high-price strategy.