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GM fine shows China hazards

by David Zatz on

Analysis. Just about every automaker in the world is intent on tapping China, which is the world’s largest market — and still growing.  But there are hazards, as GM and Apple have discovered.

The Chinese government is fining General Motors $29 million (4% of annual sales) for “monopolistic pricing,” based on GM’s practice of setting minimum sales prices for dealers. Volkswagen’s Audi brand was fined over $40 million for the same reason.

Foreign companies have not been able to build cars in China on their own, but must bring in a Chinese company to form a joint venture on, at most, a 50/50 ownership basis. In addition, foreign cars and some components are taxed with punitive duties if brought in fully assembled. The United States, in contrast, has China pegged as a “most favored nation,” giving Chinese goods extremely low import taxes.

China has also targeted Japanese and European automakers, and has, several times, punished Apple to the point of forbidding phone sales, in order to help domestic phone makers.  The reliance of American manufacturers on Chinese manufacturing and sales makes any attempt to level the playing field a dangerous game. (It is more serious for manufacturers in areas where Chinese competition is already strong — in addition to banning iPhones, China has fined Qualcomm nearly a billion dollars, saying Qualcomm’s patent royalties were too high.)

FCA is attempting to dramatically increase their sales in China, with local production of several models under way or starting up soon; the company will rely heavily on locally produced Jeeps for Chinese sales growth.

If FCA’s strategies and cars pay off and sales skyrocket, a bill from the Chinese government is sure to follow — along with the countless domestic imitators that are already being assembled by Chinese companies, free of patent or trademark laws. Along the way, FCA is, like Volvo, GM, Ford, and others, training a Chinese company in how to build cars competitively.

It seems everyone has to be in China — but it also seems like a strategy that can easily backfire.

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