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Anti-monopoly law bringing competition to China auto market

Vivian Jin From edmunds.com| August 07 , 2008

SHANGHAI, China — Competition, a relatively new business concept in China, will take center stage in the auto market at the same time that the Olympic Games captures the world's attention. A new anti-monopoly law that took effect August 1 is likely to leave new-vehicle shoppers as the big winners. The law lets dealers set their own prices — and sell to shoppers outside their designated sales regions. Previously, automakers set prices as part of their overall marketing strategies.

"Dealers will have a bigger say in setting car prices," Renald Sui, general manager of Shanghai Debao Motor Service, a BMW dealer, told Inside Line. "Car prices are expected to drop amid the furious price competition, which could benefit consumers," he said. "On the other hand, it may also lead to financial problems for dealers and could possibly ignite a consolidation among dealers."

Guangzhou Toyota said it would support dealers in offering discounts, making it the first carmaker to loosen its tight pricing controls. Some of the brand's dealers have already begun to mark down prices. Their sales promotions show Camry prices cut by an average of $2,350 off the $28,880-$39,400 price range previously in effect.

"The new law will be by no means confined to price adjustment. It will apply across all segments of the auto industry, from manufacturing through to sales and after-sales services," said Feng Xingya, the company's deputy general manger.

Local governments will also no longer be allowed to force companies to buy cars made by domestic makers as part of the government procurement programs, which is expected to create opportunities for carmakers as well.

Another important change is the end to a hold on after-sales repair and maintenance work by authorized dealers. Other dealers can now offer repairs — and spare parts — at lower prices.

The introduction of the anti-monopoly law has triggered heated discussion in the auto industry. The previous regulations were "designed to protect carmakers' interests," said Liu Tongfu, deputy secretary general of China's Automobile Dealers Association. He commented, though, that while "automakers used to exercise strong control over dealers...the new anti-monopoly law may help create a more balanced market position between dealers and carmakers."

Yang Song, marketing director of Dongfeng Nissan, said the impact of the new law will be profound. "Carmakers with a complete production lineup will have the ability to minimize the impact and cover losses brought by dropping car prices," he said.

Vehicle sales expanded by 18.5 percent to 5.18 million units between January and June from a year earlier, the China Association of Automobile Manufacturers said in its latest report. Still, that was nearly 5 percent slower growth than the same period last year, in part because rising fuel prices have cooled buyers' ardor for the time being.

A sea change in the excitingly young Chinese auto market.

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