Chinese Regulators Fine Volkswagen and Chrysler on Antitrust Charges

September 11, 2014


HONG KONG — Chinese regulatory agencies announced fines totaling $46 million against Volkswagen and Chrysler on Thursday after finding them guilty of violating antitrust laws, while the government rejected accusations that multinationals were being singled out for unfair scrutiny.

[Reposted from the NY Times. By Keith Bradsher and Chris Buckley, Sept. 11, 2014]

The penalties on Volkswagen and Chrysler were the latest in a series of tough measures by antimonopoly regulators in China, including fines totaling about $200 million that were imposed on Aug. 20 on a dozen Japanese auto parts and bearings makers accused of conspiring to overcharge automakers’ assembly plants.

But Chinese officials have taken pains in recent weeks to deny that they are aiming at multinationals. Prime Minister Li Keqiang said on Tuesday that antitrust cases against foreign companies represented only a tenth of all such investigations.

He said enforcement of the antitrust rules would, in fact, make “even more foreign investors, and more foreign products, willing and daring to enter China, because there is a fair competitive environment.”

Price regulators in Hubei province imposed a fine of $40.5 million on the Audi unit of Volkswagen, a month after the unit publicly acknowledged, while providing few details, that its dealership network there had violated antimonopoly laws. Hubei regulators said in a statement on Thursday that Audi had reached monopolistic agreements with 10 dealerships there to maintain high prices for cars and replacement parts.

The investigators concluded that the agreements “interfered in the price-setting rights of downstream businesses, raising the sales price of whole vehicles and of parts, excluding and limiting the normal competitive order in the market for whole vehicles and parts, and hurting the interests of consumers.”

Shanghai price regulators have leveled the accusation of fixing prices for new cars and replacement parts against Chrysler as well, in imposing a fine of $5.2 million against Chrysler’s operations there, the official Xinhua news agency said on Thursday. The regulators accused Chrysler of conspiring with dealers to keep prices high for its vehicles — mostly Jeeps — and punishing dealers that did not cooperate by allocating few of the hottest-selling models to them.

Audi issued a statement late Thursday in which it confirmed “the penalty and violations as they are mentioned on the website of the Hubei Price Bureau.”

Audi also said that its joint venture with China FAW, the 50-50 partner in its Chinese operations, was “optimizing the management processes in the sales and dealership structure” and would “attach great importance that all applicable antitrust and competition laws are adhered to.”

Chrysler said in a brief statement that it “respects and accepts this final ruling by the Shanghai Price Bureau” and that it was committed to remaining highly competitive in the Chinese market.

In China, as in the United States, dealerships are generally owned by independent businesses, and not by the automakers themselves.

On the same day the Chrysler and Audi fines were announced, government officials in Beijing argued at a news conference that their use of the antitrust rules was impartial and fair, and not directed unjustly at foreign companies.

“Our enforcement of the Antimonopoly Law has proceeded strictly according to legally stipulated procedures,” said Xu Kunlin, the director general of the price supervision bureau of the National Development and Reform Commission. “It’s fair and transparent, and is not targeted at any market entity, and not at foreign investment or foreign businesses.”

“There is no problem of so-called selective enforcement of the law,” he added.

China is not the only Asian country this summer that has examined automakers’ compliance with antitrust regulations, particularly over replacement parts. India assessed fines totaling $420 million on Aug. 25 to 14 automakers after accusing them of manipulating the market for replacement parts. India alleged that they had forced consumers to purchase high-priced parts from the automakers’ factories instead of generic parts by using measures like not selling diagnostic tools in independent garages.

In the United States, the Federal Trade Commission in the 1960s and ‘70s investigated whether automakers there were unlawfully preventing consumers from buying generic parts. Automakers agreed then to a series of measures to allow generic parts to compete.

The big change in the aftermarket auto parts industry in recent years has been the rapid rise of hundreds of Chinese manufacturers offering extremely inexpensive parts with varying levels of quality. New entrants in the replacement parts market have undercut the automakers by wide margins on price, severely eroding profits in an area that had been a nearly guaranteed moneymaker for automakers.

More recently, global automakers have begun collaborating with insurers and higher-quality producers of generic parts to set minimum quality and safety standards, in the hope of beating back competition from low-priced manufacturers.

“They simply can’t compete with cheap, poorly made, unsafe parts in the market — the sellers will always undercut them in price,” said Jack Gillis, who is the executive director of the Certified Automotive Parts Association, a private American group that sets standards and certifies exterior auto parts manufactured as crash replacements by independent companies.

“On the other hand, if the competitor is forced to build the part with the same materials and construction as they do, they have a fighting chance to compete,” added Mr. Gillis, who is also the public affairs director at the Consumer Federation of America.

In China, domestic automakers are being pummeled by international competition, and the government has been searching for ways to help a homegrown industry that even several years ago held the promise of becoming a big exporter. Chinese private and state-owned automakers have long competed to offer the cheapest, most basic cars, and have lost market share as Chinese families have become more prosperous and more willing to spend the extra money to buy foreign models.

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Big cities like Beijing, Shanghai and Guangzhou have also severely curtailed the issuance of new license plates, prompting many consumers to buy the most expensive car they can afford when they can obtain a license plate at all.

One of China’s biggest domestic automakers, Geely Automobile Holdings, is an example of the deep trouble that the domestic industry now suffers. Owned by Li Shufu, who also purchased Volvo from Ford Motor in 2010, Geely announced on Aug. 20 that its sales had fallen 32 percent in the first half of this year from the same period a year ago.

Fines against Volkswagen and Chrysler could also help the government address persistent complaints that international brands of cars typically cost twice as much in China as overseas, and sometimes almost three times as much. The main reason for the steep prices, evident to anyone who tries to compare prices on the Internet, is that China imposes a series of huge, largely hidden taxes on cars: an engine tax of up to 40 percent of the sales price, a 25 percent import tax and a 17 percent value-added tax.

But the fines could foster an impression that auto prices are high in China not because of taxes but because of price-gouging by multinationals. That could erode the ability of multinationals to charge extra for coveted brands that have strong reputations for style, safety or other attributes, making them more affordable for Chinese consumers.

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