China finds Mercedes-Benz guilty of price fixing-Xinhua

By Brenda Goh

SHANGHAI/FRANKFURT (Reuters) - Germany's Mercedes-Benz has been found guilty of manipulating prices for after-sales services in China, the official Xinhua news agency reported, adding to pressure on foreign carmakers in the world's largest auto market.

Brands including Volkswagen AG's (VOWG_p.DE) Audi, BMW (BMWG.DE) and Mercedes-Benz are cutting prices for new cars and spare parts in an effort to appease Chinese regulators which have accused some of them of anti-competitive behaviour.

Daimler, the parent company which makes the luxury Mercedes-Benz cars, said on Monday it was cooperating with authorities and declined to comment further.

An array of industries, from milk powder makers to electronics firms, has come under the Chinese regulatory spotlight in recent years as the government intensifies its efforts to make foreign companies comply with 2008 anti-monopoly legislation.

Anti-trust regulator, the National Development and Reform Commission (NDRC), launched an investigation into the auto industry following domestic media complaints that foreign carmakers were overcharging Chinese customers for vehicles and spare parts.

The Xinhua report, which cited regulators, made no mention of possible penalties for Mercedes. The regulator can impose fines of up to 10 percent of a company's China revenues for the previous year.

Analysts at JP Morgan said the willingness of the German manufacturers to lower prices in China reduces the possibility of high fines but in the longer term could hit profitability.

Mercedes-Benz recently announced that it would reduce prices on some spare parts by an average of 15 percent and BMW said it would cut prices by an average of 20 percent, JP Morgan said. Audi has also said it will cut prices but did not specify by how much.

In the longer run, forcing European carmakers to lower the price of spare parts and imported vehicles could see margins in China normalize to levels currently seen in Europe, JP Morgan said in a note earlier this month.

"We believe that this might happen gradually over the next five years or more," the brokerage said, adding it sees an impact on earnings per share of around 3 percent for German carmakers.

They said that if the price of spare parts and services fell 20 percent in China, Daimler and BMW's pretax profit would take a hit of around 1 percent in 2015, and Volkswagen's pretax profit would fall by just under 3 percent.

ANTI-COMPETITIVE PRACTICES

The Jiangsu Province Price Bureau found evidence of anti-competitive practices after raiding Mercedes-Benz dealerships in the eastern coastal province and an office in neighbouring Shanghai, Xinhua said in its report on Sunday.

The European Chamber of Commerce in China has expressed concern that European companies were being unfairly targeted and were discouraged from appealing against fines.

"The European Chamber has received numerous alarming anecdotal accounts from a number of sectors that administrative intimidation tactics are being used to impel companies to accept punishments and remedies without full hearings," it said last week.

Critics however say automakers have too much leverage over car dealers and auto part suppliers in China, enabling them to control prices.

The Xinhua report said the cost of replacing all the spare parts in a Mercedes-Benz C-Class could be 12 times more than buying a new vehicle, citing a report from the China Automotive Maintenance and Repair Trade Association.

Earlier this month the NDRC said it would punish Audi and Fiat SpA's (FIA.MI) Chrysler for monopoly practices. Executives at Toyota Motor Corp said the government was looking into the auto parts policies of its premium brand, Lexus.

Chinese media reported last week that Audi, the best selling foreign premium car brand in China, would be fined around 250 million yuan (24.33 million pounds).

Foreign car brands, all of whom operate in China through joint ventures with a local partner, have been fiercely competing to up their share in the world's largest car market.

Daimler has said that it wants to boost China sales of Mercedes-Benz cars to more than 300,000 cars a year by 2015, while Audi expects China to make up 40 percent of its sales by 2020.

(Additional reporting by Edward Taylor and Andreas Cremer; Editing by Erica Billingham)