NDRC delivers record fine in the Chinese automotive sector

Background

On 23^rd April 2015, China’s National Development and Reform Commission (the “NDRC”) announced that the Jiangsu Provincial Price Bureau (the “Provincial Price Bureau”) has fined Mercedes-Benz (“Mercedes”), a subsidiary of Daimler AG, RMB 350 million ($57.1 million) for vertical price fixing in relation to E-Class and S-Class passenger car models.

While the fine imposed on Mercedes does not come close to the RMB 6.09 billion ($975 million) imposed on Qualcomm in relation to anti-competitive patent licensing practicesin February, it represents 7% of Mercedes’s sales revenue from the two affected vehicle models in the region during the period of the infringement and further highlights the NDRC’s increasing activism, especially in relation to foreign companies operating in China.

The Investigation

In August 2014, Mercedes announced that its sales offices and dealerships for Mercedes-Benz China in Shanghai and the province of Jiangsu were dawn-raided by investigators from the NDRC.

A statement released by the NDRC and the Provincial Price Bureau on 23 April 2015 stated that they found Mercedes and its dealers had used telephone conversations and dealer meetings to set a minimum resale price for its E-Class and S-Class models as well as for numerous spare parts. Mercedes were also found to have attempted to discipline members of its authorised dealer network who offered lower prices than those set by the company by reducing or removing the amount of support they were given.

 The Fine

According to NDRC’s statement, Mercedes had “taken a leading position in the formation of the monopoly agreement”.  As a result, NDRC fined Mercedes-Benz China Ltd RMB 350 million ($57.1 million) and imposed additional fines totalling more than RMB 7.8 million ($1.3 million) on its dealers in cities in the Jiangsu region.

The fines imposed on the dealers represented approximately 1% of their turnover.  The price bureau reduced or waived fines against certain dealers, acknowledging their cooperation during the investigations. 

Comment

Mercedes is the latest in an increasingly long line of automotive companies to be fined for anti-competitive practices in China. Last year Audi, the luxury arm of Volkswagen, was fined RMB 250 million ($40.2 million) and Chrysler, the luxury arm of Fiat, was fined RMB 32 million ($5.2 million) for similar practices to that of Mercedes.

China has now overtaken the United States as the world’s largest automobile market and reports have suggested that the fines handed down to both Mercedes and Audi could have been far larger if other instances of anti-competitive behaviour had been discovered in provinces beyond Jiangsu and Hubei. Last year, BMW, Audi, Chrysler, Toyota Motor Corp and Honda Motor Co all announced price cuts for cars or spare parts in response to the anti-monopoly investigations. This begs the question whether more automotive companies will find themselves the subject of probes by the Chinese competition authorities.

It is clear that following a record year for the NDRC in terms of infringement decisions and fines, as well as the highest ever antitrust fine imposed by the NDRC against Qualcomm, the Chinese competition authorities are not planning to rest on their laurels. Organisations doing business in China, would be wise to ensure their business practices comply with the Anti-Monopoly Law and that they do not give rise to any suspicion of anti-competitive conduct on the part of the NDRC.