The National Development and Reform Commission has been especially busy this month handing out a series of steep fines to foreign auto companies for price fixing. Audi, Mercedes-Benz, Chrysler, Mitsubishi, Toyota, Honda and BMW all stand accused of inflating the price of after sales services and auto parts in the Chinese market and have since made a commitment to reduce costs.
Audi could face a 250m yuan ($40m) fine and other European automakers could face a similar fate. Three German car parts suppliers have also been ordered to form joint ventures with local operations, presumably to promote knowledge-sharing and increase the NDRC’s ability to govern foreign firms.
Japanese companies were arguably hit the hardest with a staggering $201m in fines levied across 12 auto parts makers. The NDRC claimed they had been “improperly” pricing auto parts for years.
German companies are likely to be relatively unaffected by the fines as sales continue to rise across the board. For VW, which sold a record 9.7m cars globally and made $5.5bn in profit in 2013, a $40m fine shouldn’t be hard to swallow, nor should it cause significant damage the reputation of its brand. However, Japanese manufacturers may not fare as well.
In the long term, however, forcing foreign automakers to reduce prices could have a detrimental effect on domestic firms. Narrowing the gap between the two could cause customers to choose the only slightly more expensive foreign parts rather than buy domestic. However, taking away the price advantage is almost certain to force Chinese firms to differentiate themselves through innovation instead.
In the lubricants sector, at least, companies are already taking notice. Weichai Power, itself a parts maker and lubes producer, has released a new line of lubricants for the nation’s construction industry. The company claims the segment is rife with “bad habits”, such as using substandard diesel oils and filling National III engines with CF-4 grade lubes, and is promoting the high-end performance of its latest offering.
Even Shell has seen an unusual opportunity in China’s ubiquitous three-wheelers. The Dutch major is currently on a nationwide roadshow to promote its three-wheel friendly lubes.
Specialising will also mean navigating a host of changing and complex lubricants specifications. OATS is continuing to expand its lubricants database above and beyond the auto sector and into the busy off-highway, construction and industrial segments to meet the needs of lubes producers looking for an edge in the Chinese market. To find out more, or to comment on anything you read in this Bulletin, simply contact Diana Shen.
Sebastian Crawshaw
Chairman, OATS