New warranty law threatens small Chinese car builders image

A more restrictive vehicle warranty law that takes hold in China since Tuesday is unlikely to affect the foreign global automakers, though it would actually raise costs for smaller local players.

The new “lemon law” gives Chinese consumers a protection that closely mirrors the one that US consumers get,  allowing them to ask and easily obtain free repair of defects or replacement of faulty cars.

The large global manufacturers -like General Motors or Toyota – are already prepared to handle such tougher laws, as they already meet their requirements in  their home or international markets.

On the other hand, for many  of China’s indigenous automakers, especially those that are small and little-known, and inherently have a less rigorous quality control, the new requirements could spill their demise by sharply increasing warranty-related costs.

“This will add pressure on many low-quality local brands in 2015 onwards,” said Jeff Chung, a Hong Kong-based analyst with Daiwa Securities. “I do not see this new regulation driving those smaller and weaker players into the ground in the next 12 months, but yes, they could be in trouble longer-term because industry consolidation is the ultimate goal for the central government.”

China has a little over  70 registered automakers, most competing for just a small piece of the world’s largest car market, currently occupied in its vast majority by the foreign brands, seeking to get their share of the rising sales accounted in China.

Via Reuters