That hurts: Chinese government punishes Audi and Chrysler for price fixing. More fines to come

Winterkorn in Beijing - Picture courtesy Bertel Schmitt

Foreign brands own more than 70 percent of the world’s largest car market China, and they are taking home outsized profits. China’s government is putting an end to this. China’s antitrust regulator, the National Development and Reform Commission (NDRC), found Audi and Chrysler guilty of monopoly practices. “They will be punished accordingly in the near future,” NDRC spokesman Li Pumin told Reuters. The still unannounced fines can be up to 10 percent of the automaker’s domestic annual sales revenue.

In 2008, China passed new competition laws. Due to lax enforcement, the laws were mostly ignored. “Monopolistic practices are quite rampant in the auto industry. NDRC is first targeting imported luxury brands because the problem is most severe in this area,” Yale Zhang, managing director of consultancy Automotive Foresight told Reuters.

According to the new rules makers may not dictate dealers minimum sales prices. NDRC investigators raided dealers and offices of various automakers and parts makers. At these raids, proof of minimum price fixing was found, Chinese media allege.

Audi sells approximately one third of its worldwide volume in China. Volkswagen booked pretax profits of €7.8 billion in the first six months of the year, €2.6 billion came from China.  These profits are a thing of the past. Audi, along with other makers, already reduced prices in China.

Fines for additional automakers appear to be imminent. Foreign automakers need to form joint ventures with Chinese makers to operate in China. Volkswagen’s joint venture partner for Audi is FAW, a company owned by China’s central government. It is currently unclear how any fines will affect the Chinese joint venture partners.