Chinese Government Probe Could Spell End Of High Profit Margins On Auto Sales

China Car Dealer - picture courtesy

Two years ago, Nissan/Renault’s CEO Carlos Ghosn told the author of this story:

“For carmakers, China is one of the most profitable markets in the world. It used to be the United States. Now it is China.”

Soon, making money in China could be harder as the National Development and Reform Commission (NDRC) is looking into allegations of price fixing and anti-competitive behavior.

Until Ghosn said it aloud, it was an open secret in the industry that big profits can be made in China. The party could be coming to an end. The China Automobile Dealers Association (CADA) told Reuters that it has been doing research for the NDRC since last year, and that the powerful government agency is investigating whether carmakers were setting a minimum retail price for dealers in China, which could contravene China’s 2008 anti-monopoly law.

Says Reuters: “The world’s largest auto market is a key source of revenue for many foreign companies and such scrutiny would be unwelcome.”

An editorial of the Xinhua news agency had blasted foreign carmakers for reaping exorbitant profits selling imported luxury cars in China, saying that some imported cars were twice as expensive in China than in overseas markets. OEMs cite high taxes. Cars imported to China carry a 25 percent tariff. Higher displacement cars coming from the U.S.A. are burdened with an extra punitive tariff in response to America’s tire tariff. There is a value-added tax of 17 percent and a consumption tax that depends on the engine size.

According to Reuters, dealer association is looking at imported cars along with vehicles produced by foreign companies in association with local partners. The local partners usually are government-owned.