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Car Manufacturers and Distributors on the make

It's not import duties and taxes in China that make foreign cars ridiculously expensive

08·19·2013

Car Manufacturers and Distributors on the make

It's not import duties and taxes in China that make foreign cars ridiculously expensive

08·19·2013

Imported cars cost more in China than anywhere else in the world. An Audi Q7, and the Chinese love their Audis, usually costing between $47,000 to $61,750, costs two or three times more in China, with the top model costing up to $223,000. Part of this higher price is due high import taxes. However, some of the obscenely inflated costs are due to money grabbing on the part of Chinese automobile importers.

According to CCTV,  the  imported cars industry has three types of tax of tax in China: import tariffs, consumer taxes, and a value-added tax. For imported cars with engines over 4 liters, the prices double after tax; for cars over 3 liters, the tax puts a 95% increase on the sales price; for cars under 3 liters, taxes will put the cars at 66% above the regular price.

This begs the question, if taxes increase car prices 1.5 to 2 times, why do most imported cars cost 2 to 3 times more? It seems that the price hike is made by deals between authorized distributors and car makers. The government has questioned the issue of monopoly within China’s auto industry, and has announced their intention investigate.

Foreign car manufacturers, set a minimum retail price for Chinese dealerships. From the start, authorized dealers are under the command of car makers, with no ability to change the retail price. According to Audi, the price differences are largely results of import duties and taxes, but as the Telegraph reported:

“… [the China Automobile Dealers Association] was looking at imported cars along with vehicles produced by foreign companies in association with local partners. Mr Luo added: ‘Of course, there are tax issues here… and high profit margins don’t necessarily mean a monopoly.'”

Many 4S dealerships (Sales, Service, Spare parts and Surveys) in China are notorious for their over-the-top prices for both foreign cars and their respective auto parts. Customers told a local Beijing newspaper that a regular GPS costs over 4,000 RMB in a 4S dealership and expensive “manufacturer’s auto parts” replaced after a visit to a 4S, often turn out to be second-hand. Even with such high profit margins, 4S dealerships are suffering because of price-fixing among manufacturers.

Chinese consumers are willing to pay significant cash sums for foreign products, due to the status they bestow.  Some of the uber rich may agree to pay three times more than the same automobile would cost in Europe, but many Chinese consumers are starting to realize these car dealers are taking them for a, very expensive, ride. As 4S dealerships start to experience losses, perhaps there is hope that the relationship between car manufacturers and authorized distributors undergoes reform.