Daimler AG (OTCMKTS: DDAIY)’s Mercedes-Benz Slammed With Price-Fixing Scandal in China

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By Mark Michaels on August 18, 2014 Company, Intl News

Yesterday, the German car company Daimler AG (OTCMKTS:DDAIY), the maker of luxury vehicle brand Mercedes-Benz, is facing charges for manipulating prices for after sales services in China.

According to Chinese media outlet Xinhua news agency, the German luxury car manufacturer has been found guilty of fixing prices in China. The report did not mention the penalties that the company will have to face. However, we can look to China’s 2008 antimonopoly law that gives the right to China’s anti trust regulator, the National Development and Reform Commission (NDRC), to fine the company up to ten percent of its revenues in China from the previous year.

In recent years, many industries all across the board have been coming under fire as the Chinese government intensifies its efforts to bring companies up to standards with the regulations it passed in 2008. These industries include the electronic companies and milk powder manufacturers.

The automobile industry specifically has lately been under particular examination. A surge of investigations has made auto makers, including Mercedes-Benz, which is owned by Daimler AG, to its spare parts prices in the past few weeks. Other companies affected include Volkswagen AG’s Audi and BMW cars.

The Bureau of China’s Jiangsu province launched the investigation last month. The government entity raided dealerships of Mercedes-Benz and discovered evidence of practices involving anti competitive actions. According to Xinhua, The Jiangsu Province Bureau also seized an office in Shanghai, which borders Jiangsu.

A spokesperson from Daimler AG reiterated an earlier statement released by Mercedes, which revealed that the company was working closely with Chinese authorities in their investigation. They did not comment any further, citing reasons that it was an ongoing investigation.

Zhou Gao, the head of the anti trust investigation from the Jiangsu Bureau, stated that Daimler’s case is a typical one of a vertical monopoly, in which an auto maker uses its dominant market position to fix the prices of its spare parts, maintenance and repair services in downstream markets.

Experts in the industry claim that car makers hold too much of an advantage over suppliers of car parts and car dealers. This unfair advantage allows the manufacturers to control prices. This is considered a violation of China’s anti trust regulations.

According to Chinese news outlets, the amount of money need to replace all the spare parts in a Mercedes-Benz C-Class vehicle could be up to twelve times more than the cost of buying a new vehicle.

The Biggest Car Market In The World

A few weeks ago, the NDRC announced that they would penalize Fiat and Audi for anti trust violations. Audi is the best selling foreign luxury car in the market. The company will be fined 250 million yuan, or $40.7 million.

Foreign car companies all must work with a local partner in order to operate in China. These foreign auto makers are embroiled in a fierce competition in the world’s largest auto market.

Daimler AG has stated that it plans to boost the sales of Mercedes-Benz vehicles in China to over 300,000 units a year by 2015. On the other hand, Audi intends to increase its sales in China to be 40 percent of its total sales by 2020.

Analysts have estimated that the German auto maker could face a fine of at least 1 percent of its annual revenue. This penalty could take away 10 percent of the joint venture’s total profits.

Other companies across various industries that have been fined by the Chinese government include Danone SA and Mead Johnson Nutrition Co.

Currently, the Chinese government is investigating American tech giant Microsoft Corp (NASDAQ:MSFT) and Qualcomm Inc (NASDAQ: QCOM).