China plans to ease rules on car market

The Financial Times, January 6, 2016

China plans to ease rules on car market - FT.com Safari, Today at 2.50.51 PM

Beijing plans to shake up the domestic car market by relaxing restrictions on dealers so they can sell vehicles from multiple makers.

China’s Ministry of Commerce, which oversees car sales, has published for public comment rules that would bar manufacturers from forcing unilateral sales quotas on dealers or requiring them to take on unpopular models or inventory. Dealers would also be permitted to stock cars from more than one manufacturer and sell excess stock to each other.

Global carmakers are already facing a challenge in the world’s largest market as China’s economic slowdown and vehicle licensing restrictions in many big cities start to eat into years of reliable profits.

Yu Jianliang, a China-based motor industry analyst, said: “This is really good news for car dealers and will reduce their business risk.

“Car dealers in China have less say and more restrictions than their foreign peers. But now the industry is in a downturn and dealers are complaining a lot about pressure on their business. The draft policy could ease that.”

The draft rules would also benefit smaller manufacturers, enabling them to sell their cars through distributors of more popular brands without having to build up a sales network independently, analysts said.

“In the short term it will boost dealer confidence and in the long term, [I expect] it will bring more models to the market,” said Mr Yu.

The measures would be in line with efforts over the past few years to increase competition in the market, with Beijing penalising some foreign vehicle and parts makers for what it said was anti-competitive behaviour.

Multinational groups are already under pressure from steps by authorities to legalise so-called parallel imports of cars that manufacturers originally intended to sell in other markets, but which make their way into China at a substantial discount.

Bill Russo, a Shanghai-based motor industry consultant, said the dealer rules, if adopted, would be a “major move that is consistent with the themes of recent years including the recent anti-monopoly campaign and permitting parallel imports”.

“They are attempting to give more leverage to dealers, as well as create price competition,” he added. “Pricing and margins have been high in China relative to other markets, and this will serve to change that.”

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