The situation in China, the world’s largest auto market, is rosy no more – after years of double-digit gains as the overall economy is predicted to slow its growth to the lowest level this year since 1990.
The past year was not so great for the foreign global automakers – besides the fact that they need to have joint ventures (that means splitting the profits) with local companies if they want to sell or produce cars there. In 2014 most of the worldwide powerhouses were subject to massive investigations into alleged anti-competitive pricing strategies, with the Chinese regulators imposing fines or making the automakers lower prices for auto parts and models. Additionally, they have come under pressure from their local sales networks as the dealers asked for money because the carmakers imposed unrealistic sales targets.
And there’s another reason to fear – the thriving “parallel imports” market, where unauthorized dealers bring cars imported from the US and even with shipping costs and import duties offer up to a 20% saving on the manufacturer’s suggested China retail price. The added pressure is especially dangerous for the premium automakers that count China as their largest market and reap most of their global profits there. According to the Chinese Automobile Dealers Association, with the markets for parallel car imports legalized by the Chinese government in August, sales of the sector reached two years ago around 83,000 units – and that compares to total passenger-vehicle sales of 18 million units that year.
Via Financial Times