Audi cuts prices of spare parts in China


By Colum Murphy

BEIJING– Volkswagen AG’s Audi AG announced Saturday price cuts for spare parts of up to 38% in China, the company’s largest market, as the Chinese government steps up its scrutiny of foreign luxury-car makers.

Audi’s move comes one day after Tata Motors Co.’s Jaguar Land Rover PLC said Friday it will reduce prices for three models in its portfolio in response to an investigation by the pricing and antimonopoly division of the National Development and Reform Commission, China’s top economic-planning agency.

“Localization measures and economies of scale allow Audi to adjust the prices for spare parts in China. Audi passes these cost advantages on to its customers,” Audi said in a statement Saturday. The auto maker said it had made the adjustments “proactively.”

Audi cited price reductions ranging between 16% and 38% for products including certain types of engines, gearboxes and car-body parts as examples. The new spare-parts prices will be effective from Aug. 1.

Last year, Audi sold almost 1.6 million Audi-brand cars globally, with almost half a million of those coming from China, up more than 20% on the previous year. Audi is the market leader in China, where the brand for long was the car of choice of Chinese government officials.

China’s market for luxury cars is expected to surpass that of the U.S. to become the biggest in the world as soon as 2016, according to consultancy McKinsey. The market is dominated by the top three German luxury brands: Audi, BMW and Mercedes-Benz.

S C Bernstein analyst Max Warburton said spare parts represent almost all the operating profit of car manufacturers such as Audi in Europe and the U.S. In China, however, auto makers make money on selling cars.

“It’s not a disaster,” Mr. Warburton said referring to Audi’s price cuts. “China is probably only a small fraction of global spare-parts revenues as the fleet is young.”

He estimated spare parts account for around 10% of revenue for the automotive industry globally with margins as high as 40%.

Jaguar Land Rover announced its price reductions on Friday.

“We will do everything possible to work together with our Chinese retail dealer partners to offer customers the highest levels of support in all respects, whether that is vehicle sales or after-sales service,” said Bob Grace, regional president at Jaguar Land Rover Greater China, in a statement.

China’s economic-planning agency, the NDRC, didn’t respond to requests for comment on JLR on Friday and wasn’t immediately available for comment Saturday regarding Audi’s cuts.

State-run China National Radio cited an unnamed official from the NRDC’s antitrust agency as saying: “We welcome such voluntary moves by global auto brands like Audi. We hope other companies can also review their practices and take measures” to promote the Chinese auto after-market industry and protect consumers’ interests.

China has strengthened its regulation of pricing in recent years under its antitrust law that was enacted in 2008. It has taken aim at a variety of foreign brands ranging from pharmaceutical producers to the baby-formula milk-powder industry, sometimes leading to considerable fines.

The pricing and antimonopoly division of the NDRC recently expressed concerns about foreign luxury auto makers’ pricing policies in China.

“Audi and its joint venture FAW-Volkswagen support the efforts of the NDRC, to examine the pricing in the after-sales area in China,” the statement said.

Anthea Wang, a spokeswoman for Jaguar Land Rover in China, said Friday the price reductions will have “some impact” on the profitability of JLR’s China operations, said but said the company is “confident” it can have sustainable development in the market.

She said the company took the investigation “very seriously,” and as a result “came up with a proposal for voluntary adjustment for the three models.”

She also said the company is “reviewing and discussing how to optimize our service standard and after-sales pricing system,” adding that it is a “work in progress.”

Jaguar Land Rover has been one of several foreign luxury-car-makers that have been accused by China’s state media of earning exorbitant profits in China by dominating the market, overcharging consumers and controlling the sale of auto parts.

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