China Accuses Mercedes-Benz Of Controlling Spare Parts Prices

By Mani
Updated on

China’s National Development and Reform Commission has concluded that Mercedes-Benz violated provisions of the country’s anti-monopoly law by controlling the prices of spare parts, China’s official news agency Xinhua reported.

Unlike the recent official inquiries, the latest news provides some details of the accusations against Mercedes distributors and sales management.

Mercedes-Benz office raided this month

As previously reported, NDRC raided the offices of Mercedes-Benz in Shanghai earlier this month as part of the government’s anti-monopoly investigation. Interestingly, the NDRC’s action came a day after Daimler AG (ETR:DAI) (FRA:DAI) (OTCMKTS:DDAIF) announced its decision to reduce the prices of replacement components next month. Some analysts felt that the Chinese authorities are probably investigating the German automaker “because the cut hasn’t met the authorities’ expectations”. Several officials of NDRC made an unannounced visit to the Mercedes-Benz office in the province and interviewed staff.

Citing an antitrust investigator in eastern Jiangsu province, Xinhua said Monday that Mercedes-Benz, a division of Germany’s Daimler, had “controlled prices of spare parts and repair and maintenance on downstream markets.” Both NDRC and Daimler declined to comment on the latest developments.

Multinationals brace themselves for fines

China’s 2008 Anti-Monopoly Law enables regulators to fine companies up to 10% of their annual revenues for pricing violations. In the world’s largest car market, several leading players, including BMW and Mercedes, have announced wide-ranging price cuts for their parts in the recent weeks. While Mercedes announced cuts of up to 29% covering over 10,000 parts, BMW announced price cuts of up to 50% encompassing 2,000 different components.

Besides Mercedez-Benz, the NDRC is also investigating other German automakers, including Audi AG and Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW), as well as Japanese car makers to find out if these companies are inflating the prices of spare parts. The Audi AG (ETR:NSU) (OTCMKTS:AUDVF)’s Chinese operations disclosed last month that it would reduce its prices by as much as 38%.

JPMorgan analysts, in their note earlier this month, said the willingness of German manufacturers to lower prices in China could reduce the possibility of huge fines, but in the longer term, profitability could be affected. Moreover, their margins in China could normalize to levels currently seen in Europe.

Zhou Gao, an official from the price bureau of Jiangsu Province, said: “The Mercedes-Benz case is a classic case of a vertical price monopoly, exploiting its dominant position to impose controls on the price for parts and maintenance in the downstream post-sale market.”

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