Audi will 'accept penalty' in China anti-monopoly probe

Authorities have pressured at least 7 carmakers to cut prices

Audi will accept punishment from Chinese authorities for breaching anti-monopoly laws in the world's largest car market.

An investigation by Chinese authorities found that Audi's dealer arm, FAW-Volkswagen Sales Co., had "violated national anti-monopoly laws," the automaker said in an statement e-mailed to Automotive News Europe.

Audi said it and FAW-VW "closely cooperated with the investigation and will accept a penalty."

The statement came after China's National Development and Reform Commission (NDRC), which polices violations of anti-monopoly law, said it had been investigating the sector -- dominated by foreign companies and their joint ventures -- for more than two years.

It is the latest sweeping probe China has launched into alleged wrongdoings by foreign firms in multiple fields, among them pharmaceuticals, technology and baby milk.

Audi parent Volkswagen Group set up the FAW-VW joint venture to manufacture Audis and other models.

"Management processes in the sales and dealership structure are getting improved to prevent similar incidents in the future," according to the statement.

The statement did not explicitly state that Audi acknowledged any wrongdoing. But it added: "Audi and FAW-Volkswagen attach great importance that all applicable antitrust and competition laws are adhered to."

New era

China's antitrust crackdown signals a new era of regulatory scrutiny in the country and threatens to end the days when products from Audi sedans to Starbucks lattes generate fatter profits in Beijing than in London or New York.

In the past month, Chinese antitrust authorities pressured at least seven carmakers to cut prices and raided the offices of software maker Microsoft Corp.

The probes, combined with signs the government is shunning some U.S. technology companies for security reasons, have left foreign businesses struggling to figure out the evolving laws and regulations in the world's most populous country. Those seeking to adapt face the challenge of interpreting vague rules in an economy that's no longer as reliant on foreign investment as in past decades.

"We may be seeing a paradigm shift where the rules of the game are changing," said David Loevinger, former U.S. Treasury Department senior coordinator for China affairs and now an analyst at TCW Group Inc. in Los Angeles. "Until people figure out the new rules it will create a much more uncertain business climate."

Spare parts

Audi, BMW, Mercedes-Benz, Jaguar Land Rover, Chrysler, Toyota and Honda have announced price cuts of vehicles or spare parts since July in the wake of an investigation by the NDRC into more than a dozen automakers. The NDRC, China's main economic planner, takes primary responsibility for oversight of pricing and is one of three government bodies that enforce the nation's antitrust laws.

An official at a global luxury automaker in China, who asked not to be identified, said the government stepped up pressure on foreign automakers after state broadcaster China Central Television late last year criticized imported cars for being more expensive in China than in other markets.

Chinese state media also pointed at how spare parts could trump the cost of a new car. For example, replacing all the parts of a Mercedes C-class sedan can cost 12 times the price of a brand new model, according to an April report by the Insurance Association of China and China Auto Maintenance & Repair Association.

"There's a concerted effort on the part of multiple regulators in China to aggressively enforce the regulations," said Kent Kedl, managing director for Greater China and North Asia at Control Risks Group Holdings Ltd. "They are being much more aggressive now than we have ever seen."

For Volkswagen, China is so profitable that its earnings there, along with those of Audi, generate all of its cash flow, according to estimates by Max Warburton, an analyst at Sanford C. Bernstein, in November.

Beyond cars, Starbucks Corp. generates operating margins of 35 percent in its China/Asia Pacific region, higher than Europe's 9 percent and the 24 percent in the Americas.

Li Pumin, a spokesman for NDRC, told reporters on Aug. 6 that the investigation was aimed at maintaining market order and protecting consumers.

Douglas A. Bolduc, Bloomberg and Agence France Press contributed to this report


According to investigations of the Hubei Provincial Price Bureau, partial practices in the dealership network of the FAW-Volkswagen Sales Co., Audi Sales Division in Hubei province have violated national Anti-Monopoly laws.

The Audi Joint Venture FAW-Volkswagen has closely cooperated with the investigation and will accept a penalty.

Management processes in the sales and dealership structure are getting improved to prevent similar incidents in the future.

Audi and FAW-Volkswagen attach great importance that all applicable antitrust and competition laws are adhered to.

Please understand that we will not further comment until the final conclusion of the investigation is announced by relevant government authorities.



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