Earlier today, as part of the annual World Consumer Rights Day campaign, China’s government-controlled television broadcast took aim at foreign carmakers and dealers. The problems they alleged ranged from pricing to quality in the auto-industry market.
The main targets were Tata Motors Ltd’s Jaguar Land Rover, Voltswagen, as well as the some dealers. The CCTV alleged that Tata Motors Ltd.’s Jaguar Land Rover is selling 
some models with faulty gearboxes. Then on its website accused Volkswagen AG of refusing to recognize quality defects, quoting many customer complaints about the rear axle in Sagitar sedan models. The CCTV said that “dealerships for Daimler AG’s Mercedes-Benz, Volkswagen and Nissan Motor Co. are overcharging consumers at some of their service centers in China.” And that in fact –
“in some cases the foreign car makers were charging more than double for car repair and billing customers for unnecessary services.”
On the upside, both Nissan and VW have responded to the allegations, reassuring the public that they will begin investigations. Also Land Rover has issued a statement of apology and said that they have been offering gearbox software updates since January.
China is currently a breadbasket for the auto industry with a total of 3.43 million passenger vehicles sold in just the first two months of this year. Although the sales growth is now slowing, this still makes up a large portion of the sales for the companies. Because of this the Chinese have a large pull and can cause changes and improvements to their options.
This reminds me of what we have talked about recently in class, in particular how VW has been holding back its newer models and equipment. I wonder if this calling out of sorts will cause an increase in the quality or speed with which new products come into China from VW or if that will be the talk of a similar publication in the future?
I wonder how accurate these accusations are. Obviously, the Chinese government is incentived to promote domestic brands, so giving bad publicity to foreign names will help the sales of domestic companies especially considering the recent decline of passenger vehicle sales within China. On the other hand, I believe in the past, Chinese consumers did not hold purchases to the same quality standards as the rest of the world and this is beginning to change.
Part of the problem is that price elasticities of demand are different in different markets, so producers rationally charge different prices — higher when demand is less elastic. And that means China.
Now the structure of costs in the Chinese market is also different. That makes direct comparisons with other countries hard.
In any case, all this begs the question of what margin the Chinese government thinks is too high. Or is this in part the public side of disputes between VW and joint venture partners over profit sharing?