China Imports BMW X5
“We believe that despite obstacles, an increasing number of cars will be bought in the U.S. and elsewhere and shipped to China”
China’s efforts to force foreign vehicle importers to cut the price of spare parts in particular and sticker prices generally was easily shrugged off by the likes of Audi, BMW, Mercedes and Jaguar Land Rover (JLR), but reports Beijing has freed up the entrance of grey imports might make a bigger impact.
According to Bernstein Research, China legalized so-called parallel imports at the end of August, and this means that new vehicles like the big BMW X5 SUV, which retail at dealerships for almost $162,000, are appearing on the market sourced from the U.S. at close to $114,000. That’s a price cut of close to 30 per cent.
Chinese business regulators have begun punishing foreign companies for alleged monopolistic behaviour in industries ranging from cars to technology, in areas of the market in which China wants to eventually build up its own domestic producers.
Moody’s Investors Service said European automakers like BMW, Volkswagen and Audi, Mercedes and JLR will be the most affected by the price cuts because China is their largest market in volume terms, but didn’t expect this to have much impact on bottom lines for the time being. China is also GM’s largest market. Fiat Chrysler Automobiles is less exposed.
There is also a silver-lining to this, Moody’s said.
“Continued strong auto demand growth in China should offset these price cuts and could improve vehicle sales volumes in the longer term. Also, price reductions may make a new car more affordable, in turn boosting sales volumes even though they may not be sufficient to make premium models more affordable to Chinese buyers,” Moody’s said.
Bernstein Research analyst Max Warburton retains his positive view of China but points out that the degree of difficulty maybe be cranking up. European manufacturers are doing their best to stop their dealers exporting cars on the sly to China through clauses in their contracts.
But will the grey import always get through?
“We believe that despite obstacles, an increasing number of cars will be bought in the U.S. and elsewhere and shipped to China. We fear this will have some sort of negative impact on high-end cars pricing. Which manufacturers are most at risk? Those most reliant on imports, with the most egregious pricing in China. Tata-JLR, BMW and Mercedes profitability could be affected. VW looks least affected, although not immune,” Warburton said.
Other attempts by China to free up their market can be expected.
“We also understand that the government is planning to liberalize the licensing of dealers – licenses will no longer be “exclusive”, but may also now be multi-brand. Non-approved/non-official dealers will be able to sell imported cars. Official dealers will be obliged to service parallel imports,” Warburton said.