Parallel import of vehicles now legal in China
Effective September 2014, parallel import of vehicles into China, that is, bypassing the official distribution channel and thus eliminating the middleperson, was made legal. The result of this legislation is that imported cars is now much cheaper than those sold by local distributors.
A BMW X5 SUV retailing at US$162,000 at the official dealer outlets will only cost US$114,000 when it is imported directly from USA; that is a 30% price difference! The ripple effect will be that vehicle sales for foreign automakers will fall, potentially forcing them to bring down the price of their vehicles and spare parts as well. The brands most affected will be European automakers like Volkswagen, BMW, Audi, Mercedes and Jaguar Land Rover. General Motors will be badly affected as well, as China is their largest market.
This enormous Chinese economy behaves like “you need me more than I need you”. The stage of technology transfer is over; now is the time that the big brother can start punishing the monopolistic behaviors of foreign companies, not only in the automotive sector, but in other industries as well, such as technology.
Analysts believe that while foreign automakers may be forced to slash prices to compete with parallel imports, demand will be bolstered by more affordable prices which will increase sales volume, thus, leaving these foreign automakers none the worse in the long term.
Besides that, dealer licensing is going to be liberalised by the Chinese government soon, which means there will be no exclusive licenses and they can sell multiple car brands at the same time. Anyone can be a car dealer as you can parallel import legally now.
How will this impact the industry? We will need to monitor its progress for the next few months to find out.