Authored by  Michael Gu (michaelgu@anjielaw.com) at AnJie Law Firm

Background

The automotive industry has undergone a new round of “antitrust crackdowns”. On 11 September 2014, Hubei Price Bureau released its decisions to impose penalties arising from a price monopoly on FAW-Volkswagen Sales Co., Ltd (“FAW-Volkswagen”) of RMB248.58 million (USD40.52) and eight Audi dealers in Hubei Province amounting to RMB29.96 million [1]. Two Audi dealers, i.e. Hubei Aoze and Wuhan Aojia, were exempted from the penalty. On the same day, Shanghai’s municipal price authority imposed a fine of RMB31.68 million (USD5.16 million) on Chrysler (China) Automotive Sales Co., Ltd (“Chrysler”) and a combined RMB2.14 million fine on its three dealers in Shanghai for price monopoly [2]. It is worth noting that this is the first time that both horizontal and vertical monopolies were found in the same case. Both FAW-Volkswagen and Chrysler reached vertical agreements with their respective dealers to restrict the resale price of the car and after-sale services. Furthermore, their respective dealers reached and implemented horizontal agreements to fix the relevant price.

Price-fixing conduct

FAW-Volkswagen and eight Hubei Audi dealers

According to Hubei Price Bureau’s decision, since 2012, the Audi Sales Division of FAW-Volkswagen organized multiple meetings with ten Hubei Audi dealers to reach and implement car and service price monopoly agreements including a price restriction table and pricing policy guarantee letters. Furthermore, Audi Sales Division set up a supervisory board to monitor and supervise Audi dealers to ensure that the price policy was strictly implemented. Hubei Price Bureau identified that Audi’s price-fixing conduct aimed at controlling car resale prices and after-sale service prices, which deprived of or intervened in downstream operators’ pricing rights, raised prices of car and auto parts, excluded and restricted competition on car and auto parts markets and impaired interests of consumers. Such conduct violated Article 14 of the Anti-Monopoly Law (AML) which forbids undertakings from concluding vertical monopoly agreements on resale price maintenance.

In addition to their involvement in the conclusion and implementation of monopoly agreements facilitated by FAW-Volkswagen, since 2013, eight Audi dealers among the ten, reached separate inter-dealer monopoly agreements on car sales and acted upon such agreements. These dealers breached Article 13 of the AML for reaching and implementing the horizontal monopoly agreements.

Chrysler and three Shanghai Chrysler dealers

From 2012 to 2014, Chrysler signed dealership agreements with three dealers in Shanghai containing the terms of resale price maintenance. Chrysler also issued business policies to control resale prices. In addition, Chrysler punished dealers who gave price quotes via telephone that were lower than recommended retail prices by deducting rebates and imposing fines etc. Also, for those dealers whose actual resale prices were lower or only slightly higher than the wholesale price, Chrysler would suspend the supplies of some popular models or cars used for test drives. This practice is in violation of Article 14 of the AML which prohibits vertical price-fixing.

Furthermore, the three Shanghai Chrysler dealers held a meeting on 25 April, 2014 to sign a price negotiation memorandum to unify maintenance and repair service fees and other items related to the price of Chrysler, Jeep and Dodge. They also reached and enforced an agreement on hourly rates for maintenance, component prices, painting prices and implementation dates. These dealers reached and implemented horizontal monopoly agreements to fix or change product prices, which violated Article 13 of the AML.

Penalty

FAW-Volkswagen and eight Hubei Audi dealers

According to Article 46 of AML, Article 27 of Administrative Punishment Law and Article 14 of the Rules on Anti-Price Monopoly Administrative Enforcement Procedure, Hubei Price Bureau fined FAW-Volkswagen 6% of its annual sales in the relevant market from the previous year for playing a leading role. Seven Audi dealers were fined amounts ranging from 1% to 2% of annual sales. Several dealers benefited from the leniency programme. Hubei Aoze was exempted from fines for provision of key evidence and reporting proactively. Huaxing Handi’s fine of 1% of its last year’s annual sales was cut half as the second reporter after Hubei Aoze. Wuhan Aojia was also exempted from penalties because of its non-severe violation, timely rectification and lack of significant adverse effects. It is not surprising that Hubei Price Bureau applied the leniency policy to the reporters, while it is the first time that an antitrust violator was granted full exemption on the reasons other than being the first self-reporter. The conclusion of Hubei Price Bureau implies a flexible approach in implementing the leniency policy after prior decisions (where leniency programs could be applied in both horizontal and vertical monopolistic conducts and also both before and after investigation is launched).

Chrysler and three Shanghai Chrysler dealers

Shanghai Price Bureau fined Chrysler 3% of its annual sales in the previous year, and Shanghai Yueye, as the organizer, was imposed 6% of its annual sales. The other two dealers involved (Shanghai Mingchuang and Shanghai Xinjia) were fined 4% of their respective annual sales for their monopolistic conducts.

Comment

The antitrust investigation into the automobile industry is still continuing with increasingly reinforced law enforcement. It has extended from auto parts (e.g. the 12 Japanese auto parts and bearing manufacturers case [3]) to automobile manufacturers and to their dealers, covering various layers of markets. Moreover, NDRC is targeting all kinds of monopolistic conducts, including vertical and horizontal monopoly. Also, in rendering its penalties decision, the NDRC considers a number of factors in addition to the standard leniency application, such as the gravity of conduct and rectification measures. In particular, the decision on the Hubei Audi dealers indicates that companies involved in an investigation may be exempted from penalties, even if they initially fail to report to the authorities timely or proactively, so long as they can be deemed minor violators and take quick steps to rectify the violation.