Dealer Discourse

Daimler Comes Under Scrutiny in China for Suspected Illegal Pricing

  • Why it matters

    Why it matters

    China is a crucial market for Daimler, as it is for most of Germany’s carmakers. A fine that forces it to raise prices could crimp its margins there.

  • Facts

    Facts

    • Beijing enacted new laws regulating fair pricing and for the prevention of cartels in 2008.
    • But the rules were not strictly enforced and carmakers often disregarded them.
    • Estimates for the fines currently vary between a few dozen million and several hundred million euros.
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    Audio

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Sticker shock? Mercedes might soon be cheaper in Beijing. Source: DPA
Sticker shock? Mercedes might soon be cheaper in Beijing. Source: DPA

 

Officials in China are accusing Daimler of cheating its customers in the world’s largest consumer market by skewing the cost of its cars through illicit arrangements with dealers.

The country’s competition authorities in the eastern coastal province of Jiangsu are claiming that Daimler’s subsidiary there gave guidelines for minimum prices for its vehicles, the state news agency Xinhua reported on Monday. The carmaker now faces penalties worth several percentage points of the revenues of the affected business unit.

Chinese officials have been on a campaign against price fixing.

In 2008, Beijing enacted new laws regulating fair pricing and preventing cartels. The rules had been largely disregarded, but in the past few months the authorities have been strictly enforcing them. A central planning authority in Beijing, the National Development and Reform Commission, is responsible for enforcement and has the rank of a government ministry.

Apparently, it has been difficult for foreign car makers to abandon their practices that have been common for so long in China. Germany’s Audi and numerous Japanese automakers have already admitted that they broke rules. In the province of Hubei, local authorities levied a small fine against BMW’s sales organization.

In each case, the company was accused of using its market power to the detriment of Chinese consumers.

Carmakers are now being forced to lower prices, so dealers have more flexibility for issuing rebates and to help foster greater competition. Analysts said this is not a catastrophe for the companies because until now, the margins have been high. But China was the most lucrative market for German premium suppliers in recent years, so profits could be less abundant in the future.

The estimated fine ranges from a few dozen millions of euros to several hundred million euros.

There is general agreement about the government’s right to ensure consumer protection, but the practices of the National Development and Reform Commission have also sparked criticism.

The auto industry didn’t expect the sudden switch to strict enforcement. And though Chinese authorities have named international companies such as Daimler and Audi, they frequently conceal the fact that these companies are interwoven with local Chinese suppliers, who are not in the firing line.

It also remains unclear how high the penalties will be.

“The basis for calculating the revenue is not clearly defined,” wrote legal experts at the firm Paul Hastings in Beijing.

The fine could be based on the revenue of the entire corporate group in China, or it could be the revenue of only one of the subsidiaries and then only that of the affected product lines. Accordingly, the estimates currently vary between a few dozen million and several hundred million euros.

“Foreign companies should strictly refrain from minimum price specifications in business in order not to become the subject of investigation,” the experts advised.

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