China says it will punish Audi, Chrysler for monopoly behavior

An Audi car drives past Tiananmen Square. The carmaker is among foreign companies whose pricing practices for spare parts have come under scrutiny.

Photo credit: Reuters
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BEIJING (Reuters) -- China said it will punish Audi and Chrysler as well as some 10 Japanese spare-parts makers for violating the country's anti-monopoly law.

The National Development and Reform Commission (NDRC), responsible for enforcing rules against anti-competitive pricing, today said that it had found Chrysler in Shanghai and Audi in Hubei to be engaging in monopolistic behavior.

The government has also completed investigations into 12 Japanese auto-parts makers and will mete out punishment to those found to be breaking the anti-monopoly law, Li Pumin, spokesman of the NDRC, said at a press conference in Beijing.

The NDRC did not identify the spare-part makers and did not say how many of them would be punished.

The NDRC did not specify the punishment for Chrysler or Audi. Under the six-year-old anti-monopoly law, the NDRC can impose fines of between 1 and 10 percent of a company's revenues for the previous year.

"NDRC would normally set a percentage of annual sales in relevant markets as fines based on how cooperative the companies are," said Colin Liu, a lawyer in the automotive industry.

Too much leverage

Industry experts say automakers have too much leverage over car dealers and auto part suppliers, enabling them to control prices, considered as a violation of China's anti-trust laws.

"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," said Yale Zhang, managing director of consultancy Automotive Foresight (Shanghai) Co. Ltd. "It's also a warning signal to the industry. If top brands like Audi gets punishment, others would know what to do."

Zhang said imported luxury cars in China cost, on average, 2-1/2 to three times their price in the United States. The price difference is due to higher import duties and other taxes, foreign carmakers have argued.

China has stepped up scrutiny of pricing practices as the country becomes an increasingly important source of profit for foreign automakers. The state media have criticized the companies for selling imported cars at higher prices than in other markets and overcharging for spare parts.

Antitrust officials in eastern Jiangsu province have begun investigations of Mercedes-Benz dealers in five cities including Suzhou and Wuxi, while Mercedes' Shanghai office was raided by local NDRC officials.

Chrysler: 'full cooperation'

Chrysler's Chinese sales unit said that it's extending "full cooperation" to NDRC investigators, declining further comment. Chrysler is cutting prices on 145 components by 20 percent as well as what it charges customers for two Jeep sport-utility vehicles.

Audi said it attaches "great importance worldwide" to ensuring it adheres to all applicable antitrust and competition laws. Audi's Chinese joint venture said in late July that the brand would lower replacement costs of its parts by as much as 38 percent on Aug. 1.

Jaguar Land Rover said last month it cut prices on three models by an average of 200,000 yuan ($32,400) from this month.

BMW is in talks with the Chinese regulatory body about reducing prices for components, company spokesman Mathias Schmidt said this week, declining to specify what's being discussed. The automaker had already cut what it charged customers in China for spare parts in the first half of 2014, he said.

China is intensifying efforts to bring companies into compliance with an anti-monopoly law enacted in 2008, having in recent years taken aim at industries as varied as milk powder and jewelry.

In recent months, regulators have ramped up probes in industries ranging from pharmaceuticals to electronics. A number of multinational companies including Mead Johnson Nutrition and Danone have been slapped with substantial fines following similar investigations in the past.

In the latest anti-trust blitz, foreign companies that have been targeted include U.S. chipmaker Qualcomm, which officials labeled as monopolistic last month and is widely expected to get a heavy fine. Last week, investigators stormed Microsoft offices in four Chinese cities as part of an ongoing probe.

Bloomberg contributed to this report

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