Car dealership rules take new direction

Govt to alleviate inventory pressure, help consumers

The Chinese government is taking action to make the distribution of automobiles more transparent through simplifying the application and administration process, a move the industry regards as being related to an antitrust probe aimed at the fast-growing sector.

On Friday, the State Administration of Industry and Commerce issued a statement to halt applications for automobile dealerships as of Oct 1.

Once the measure goes into effect, the operational scope of the business license for existing dealerships will be unified from different branded vehicle sales to just vehicle sales.

The administration said in its statement that the move was to make the office's operating functions more market-oriented and to reinforce the monitoring and supervision of the automobile trade in order to further protect consumer rights and provide a fair market competition environment.

China Merchants Securities said in a report that the action may be a curtain raiser for the long-awaited amendment of the regulation regarding vehicle sales, which took effect in April 2005.

According to the regulation, the dealers must be authorized by the original equipment manufacturers before they apply for a business license from the administration and Ministry of Commerce.

"The regulation helped support the predominant power of OEMs and put the dealers in the back seat," said China Merchants Securities. "It stands against China's Anti-Monopoly Law. So the move will lead to the reform of vehicle distribution and after-service sectors."

Zhang Zhiyong, an independent auto analyst, said that the administration's action will support vehicle dealers, as the simplified process will greatly increase the efficiency of dealerships in opening new showrooms, as well as answer the government's appeal for simplifying the registration process for enterprises.

"It will also help alleviate dealerships' pressure from high inventories placed on them by OEMs due to their pursuit of sales," Zhang said.

Statistics from the China Automobile Dealers Association showed that in June, dealers' inventory reached its highest level in at least 12 months, as the index surged 9.6 percentage points from the previous month to 58.9 percent.

It was also the third month in 2014 that inventory surpassed the red line. Some dealers' inventory was almost five times their monthly sales.

Thus, "the administration's action will absolutely benefit dealers and consumers, as it will help provide a fairer environment in the vehicle market, so that the dealers may transfer their focus from fierce competition to innovation on operations and service," said Su Hui, deputy secretary-general of the association.

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