China is Going After Foreign Car Makers (Fitch Ratings)
Credit rating agency Fitch Ratings says that investigations by China’s National Development and Reform Commission (NDRC) into anti-competitive behavior in the auto sector have raised regulatory uncertainty and risk for international car makers. And while the potential fines likely to be levied are not expected to have a material impact on corporate stability, its unclear whether the ongoing investigations are a one-off event or part of a longer term trend of increased regulatory scrutiny for foreign auto businesses operating in China.
To begin with and two months after the announcement of an industry-wide anti-trust investigation in June, the NDRC has:
- Levied a record CNY1.24bn ($200 million) fine on 10 Japanese auto parts makers for price fixing.
- Units of Germany’s Volkswagen AG (OTCMKTS: VLKAY) and Daimler AG (OTCMKTS: DDAIF) and US automaker Chrysler have been found guilty of violating anti-monopoly laws with pending fines due to be announced.
- Other automakers and parts suppliers, including General Motors Company (NYSE: GM) are still under investigation.
It should be mentioned that the NDRC is limited to levying fines up to a maximum of 10% of Chinese revenues.
However, the investigations have already spurred several companies, primarily in the luxury segments, to slash prices. Daimler AG (OTCMKTS: DDAIF), Jaguar Land Rover, owned by Tata Motors Limited (NYSE: TTM), BMW and Audi have all voluntarily cut retail prices while Toyota Motor Corp (NYSE: TM) has reduced prices for spare parts for its premium Lexus division. The price reductions could lead to margin declines in China for these car companies, although the impact on overall profitability should not be that significant.
China is the largest and fastest growing autos market in the world and international carmakers have become increasingly dependent on the country for top and bottom-line growth. International automakers dominate the Chinese market with well over 60% market share, with struggling Chinese carmakers facing declining markets shares. The top two companies are Volkswagen and General Motors. In the premium segment, Germany’s Audi (Volkswagen), Mercedes Benz (Daimler) and BMW account for over 80% of auto sales volumes in China.
The impact on profitability from lowering prices may be partially offset by growing market share on sales, as foreign cars particularly luxury marques become more affordable.
To read the whole article, China Fines Raise Regulatory Risks for Carmakers, go to the website of China Money Network.
- US-Chinese Business Partnerships Are Thriving (Kraneshares)
- Accounting Fraud and Abuse Still Widespread Among Listed Chinese Stocks (CMN)
- China Internet Flash Report: 2015 & Beyond + an Overview of 2014 Results (KraneShares)
- Best Consumer Stocks for Emerging Market Investors (Morningstar)
- Lessons From a Decade of Chinese Stock Trading (WSJ)
- Analyst: Macau Casinos Possible Chinese Buy Out Targets (GGRAsia)
- Aberdeen Asset Management’s China Update
- Tech Sector Can Power Emerging Market Portfolios (FE Trustnet)
- Be Wary of the MSCI China Inclusion Hype (WSJ)
- Wal-mart Goes Native in China (AP)