Photo: BMW
A lot of controversy was stirred up in China along with the humungous prices some manufacturers practice in the communist country. Compared to the prices in the US, the Chinese often have to pay up to 3 times as much for the same car, for no apparent reason.
The authorities decided it was too much and started looking into the practices some manufactures employed on their own turf. Therefore, a couple of fines were handed out some time ago, to force manufacturers such as BMW, Mercedes-Benz, Audi and others to lower their prices and play fair. However, others found different ways to deal with these situations.
The black market is a heaven for those that dared to brake the law. They would buy the cars they wanted from the US and then ship them over to China, therefore paying a lot less than if they would’ve bought the same vehicle brand new back home. Some even turned this practice into a business and the FBI was looking into the matter not too long ago.
Manufacturers started dropping prices in an effort to keep the sales afloat. For BMW, this is of outmost importance, considering that they want to hit the 2 million cars sold this year and China is their biggest market worldwide. Therefore, in some cases, drops of up to 30 percent were recorded, for example on the price tag of a new X5.
“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,” said Moody Investors Service for the same publication.
Further problems will come from the Chinese government’s plans to free up their market and liberalize the licensing of dealers, basically allowing anyone to sell BMWs. That creates even more competition and, considering non-approved BMW dealers will be able to sell imported cars, prices will have to drop. On the upside, BMW dealerships could see an increase in revenues due to the servicing of imported cars.
The black market is a heaven for those that dared to brake the law. They would buy the cars they wanted from the US and then ship them over to China, therefore paying a lot less than if they would’ve bought the same vehicle brand new back home. Some even turned this practice into a business and the FBI was looking into the matter not too long ago.
China changed its mind regarding parallel imports
If, at first, the Chinese authorities condemned this sort of action, they are now apparently legalizing it, according to Forbes. Quoting Bernstein Research, they say China legalized parallel imports at the end of August, getting an immediate reaction from the market.Manufacturers started dropping prices in an effort to keep the sales afloat. For BMW, this is of outmost importance, considering that they want to hit the 2 million cars sold this year and China is their biggest market worldwide. Therefore, in some cases, drops of up to 30 percent were recorded, for example on the price tag of a new X5.
“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,” said Moody Investors Service for the same publication.
Long-term prospects are looking worse for BMW
This measure will hit BMW worse than thought initially. The sales volume will probably remain the same. Even if sales drop in China, the US is the main source market for these grey-area imports and the drop in Asia will be offset by the growth in the Americas.Further problems will come from the Chinese government’s plans to free up their market and liberalize the licensing of dealers, basically allowing anyone to sell BMWs. That creates even more competition and, considering non-approved BMW dealers will be able to sell imported cars, prices will have to drop. On the upside, BMW dealerships could see an increase in revenues due to the servicing of imported cars.
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