'Parallel imports' raises the bar in market

Vehicles ready for delivery at the Shanghai Free Trade Zone. [Photo/Xinhua]

The number of cars imported outside formal channels approved by manufacturers is increasing as independent trade companies organize improved warranties and aftersales services.

Following recent intensive anti-monopoly probes into high prices for parts at authorized dealers, so-called parallel imports are expected to put more downward pressure on the high costs of owning and operating imported vehicles.

Earlier this year, the Shanghai Free Trade Zone applied to establish a trade center for paralleled imported vehicles. The plan is still awaiting approval by regulators.

But the Waigaoqiao Automobile Trade Market in the free trade zone already has about 20 companies selling such vehicles. The vehicles are also called "non-Chinese-standard" in the industry because they are made for markets in the US, Europe or the Middle East. They are usually bought by trade companies from distributors overseas and shipped to China through legal procedures.

But foreign manufacturers don't honor warranties on vehicles that are not imported and sold by their own authorized distributors.

Exclusion from warranties is a major reason that customers hesitate to buy the vehicles although they are usually much cheaper.

With fewer layers of organization needing to take a cut of revenues, independent trading companies offer lower prices than manufacturer-authorized distributors in China.

The trade center proposed by Shanghai Free Trade Zone aims to solve the problem by offering customers warranties and services.

According to the plan, vehicles imported and sold at the trade center are eligible for the same services as products sold by foreign carmakers' authorized dealerships in China.

The trade center also plans to set up a special compensation fund and partner with insurance companies to protect the rights of consumers.

The biggest advantage that authorized dealerships now have over parallel importers is better services.

If the trade center plan comes to fruition and is used in other cities in China, many believe it will take away a number of potential buyers of imported vehicles from the current authorized 4S dealerships of automakers.

3R for parallel imports

The other good news for consumers is that such non-Chinese-standard vehicles will be guaranteed under regulations on 3R－repair replacement or return－that became effective in China in October last year.

According to previous domestic media reports, the General Administration of Quality Supervision, Inspection and Quarantine is working on a new policy that requires sellers of non-Chinese-standard vehicles to provide warranties consistent with 3R regulations.

Luo Lei, deputy secretary-general of the China Automobile Dealers Association, told National Business Daily that if the policy is issued it will regularize the development of parallel import businesses.

But because importers of non-Chinese-standard vehicles are usually small companies, they may not have the capability to meet the obligations of 3R, he said.

According to media reports, the administration plans to introduce insurance companies into the process to help the trade companies meet their 3R responsibilities.

Improving service

Market forces require importers of non-Chineses-tandard vehicles to improve their services, said Yan Jinghui, vice-general manager of the Yayuncun Automobile Trade Market, the largest of its kind in Beijing.

Nearly half of the new car sales in Yayuncun are imported vehicles, and more than one-third are non-Chinese standard. Yan told China Daily that the Yayuncun market plans to establish a special zone for such vehicles and promote it as one of its key business characteristics.

Dealerships permitted in the special zone have to meet certain criteria in warranties and after-sale services, he said.

According to Yan, imports of such non-Chinese standard vehicles account for about 8 percent of total imports.

Last year, some 1.17 million vehicles were imported by China, among which nearly 90,000 are non-Chinese standard vehicles, he said.

In developed countries, the proportion is usually around 15 percent, he said.

Antitrust probe

Parallel imports have been arriving in China for more than 10 years. The topic was recently in the spotlight after antitrust probes in the auto industry and wide media exposure of high prices for imported cars.

High prices for imported cars is closely associated with the business model of foreign brands in China, most of which authorize only one official importer.

It is usually their wholly owned or majority-owned sales company.

Experts said such business model is legal and normal but it sets the conditions for possible vertical monopoly.

Deng Zhisong, lawyer at the Beijing Dacheng Law Firm, told China Daily that a common example of vertical monopoly is resale price maintenance.

In the case of imported vehicles, it refers to the practice that carmakers require dealerships to sell cars at prices no less than a bottom line that they set, he said.

It seems that dealerships can offer discounts as they like but many carmakers use hidden measures to maintain the bottom price, Deng said.

For example, they may punish the dealerships that violate the bottom line by increasing prices, reducing supplies or supplying more unpopular models, he said.