China’s Auto Anti-Monopoly Crackdown Is Just Catching Up With The European … – Forbes
China is having a little purge in the car or auto market in that country. Investigating most of the foreign manufacturers (which means most of the manufacturers) over possible monopoly practices in said market. It would be possible to think of this as part of a more generalised attack on foreign companies (both Microsoft Microsoft and Qualcomm Qualcomm are facing inquiries as well) but in that auto market it does seem as if the action to protect consumers is justified. In many ways the authorities are simply bringing the Chinese market into line with the laws and regulations that apply inside the European Union.
The backstory is that the Chinese competition authorities are going after the car manufacturers, particularly about their control of spare parts. As a result many of those manufacturers are cutting their prices on spare parts:
Japan’s Toyota, Honda and Nissan became the latest foreign carmakers to respond to China’s anti-monopoly investigation into the auto industry, as the probe’s impact extends beyond foreign luxury auto brands.
GAC Toyota Motor Toyota Motor Co, Toyota’s joint venture with China’s GAC Group, and Guangqi Honda Automobile Co, Honda’s venture with GAC, both said late on Friday they would cut spare part prices due to the investigation.
The moves came on the heels of price cuts by foreign luxury brands including BMW, Mercedes-Benz Mercedes-Benz, Audi Audi, Chrysler and Jaguar Land Rover over the past month, as China’s price regulator, the National Development and Reform Commission (NDRC), steps up scrutiny of the industry.
Regulators rattling their sabres and thus forcing companies to lower their prices isn’t normally something you’d expect to gain approval from a free marketeer like myself, but there may well be justification here. The cost of maintaining and repairing a car is a substantial part of the cost of having one: some estimates put it at 40% of the purchase price over the years. The provision of those spare parts is also a solid profit centre for the manufacturers.
Typically the market for those spares is split into two segments. One is the approved products from the manufacturers itself: these might be manufactured in house or by an authorised outside manufacturer. Prices for these parts can be high, very high indeed. Then there’s the second part, the aftermarket manufacturers. These might be people who simply reverse engineer the parts but in many markets can also include those independent producers of the approved products: same part, lower cost and a different label in some cases. Obviously, the manufacturers would prefer that all spares bought would be those high priced ones produced by themselves. And they’ve tried a number of tactics over the years to attempt to ensure this, up to and including invalidating warranties if people use those aftermarket products.
This has led in turn to the writing of various rules about who can do what. The EU’s most recent revision can be found here. It includes things like the following:
Vehicle manufacturers supply their authorised network with
their own branded spare parts although most of the time
produced by original equipment suppliers.
In such cases, the spare parts producer, however, may not be
hindered from placing its own trademark on the part (either
exclusively or in parallel as “double branding”).
That’s quite a rule there. If an independent company has been hired to make the parts for a car manufacturer then that manufacturer cannot stop the parts maker from selling the same parts under its own brand name. There’s many other such rules but the basic aim is to make sure that having bought a Land Rover, or a GM or whatever, the consumer is not then dependent upon that same car manufacturer for the spare parts to keep the vehicle on the road. Increase the competition, watch prices fall and the consumer benefit.
So, that’s the European Union: what’s this about China then? Well, the same manufacturers in China didn’t face the same market opening regulations as they do in the EU. And thus the market wasn’t that open: it was quite normal that a sub-contractor making a part be banned from marketing that same part under their own brand name, as an example. The Chinese anti-monopoly people are making noises about this, quite possibly absolutely correctly, and that’s what’s leading to the rush by all the car manufacturers to lower their spare parts prices.
So as I say one way of looking at what’s going on is that it’s just China catching up with European Union regulations on how competitive the market for spare parts for cars ought to be.