Under pressure from the Chinese government, foreign car manufacturers are dropping prices. Starting Thursday, German automaker Audi will sell replacement parts at a significantly lower price, the firm confirmed to Handelsblatt this week. Daimler has already lowered prices for replacement parts. Britain’s Jaguar Land Rover has gone further and dropped prices for entire autos.
Foreign luxury-class car makers are a victim of their own success in China. Foreign luxury vehicles have a 70 percent market share among drivers in China and hold 62 percent of the overall market. Domestic producers can’t keep up and fell for the tenth time in a row in June. That is annoying the Beijing government, as it wants to transform the nation’s automakers into dominant players.
Since last year, China’s National Development and Reform Commission has increased pressure on foreign auto makers, first in confidential talks with the companies, and recently with public statements. The government is presenting itself as a consumer advocate.
Domestic producers can’t keep up and in June their share of the market fell for the tenth in a row. That is annoying the Beijing government.
State broadcaster China Central Television has repeatedly cited what it called excessive prices for foreign cars and tried to substantiate the allegations by comparing list prices in different countries. On Monday, the state news agency Xinhua quoted an anonymous expert who said the automakers’ profit margins are inappropriately high, and that’s unfair to Chinese customers.
The car manufacturers counter by saying it’s virtually impossible to compare vehicle prices between markets fairly. In China, many standard factory models are equipped with extras most consumers expect in expensive cars, such as air conditioning, elaborate navigation systems and luxury seats.
Nevertheless, prices are falling. In Audi’s case, replacement parts are becoming downright cheap. The standard of comparison is the total price of all the parts that make up an auto versus the price of a new entire car. For one model of the Audi A6, part prices dropped from being more than 400 percent more expensive than a new car to 290 percent. The international average is about 300 percent, according to the Association of Auto Repair Shops in China. Parts for Mercedes’ C-class cars, however, continue to come in at more than 1,000 percent more expensive than a new car.
Last week, Jaguar Land Rover reduced prices by a little less than a fifth on various vehicles, including two SUVs and a Jaguar convertible. Daimler is making no comments about further price reductions.
Since the sellers are dependent on the Chinese government’s good will, some automakers are cooperating with government demands. “Audi and its joint venture FAW-Volkswagen support the efforts of the government commission, NDRC, to investigate price structures in China’s after-sales sector,” Audi said. The company said the downward pricing trend won’t harm business: “Localization measures and economies of scale make it possible to adjust the prices for parts in China. Audi is thereby passing on the cost benefits to its customers.”