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At the First Bend, China Auto Pricing Truce Slides off the Road

Snoop Dogg

So much for the end of significant discounts on brand-new cars in China. In an effort to end a crippling price war in which certain models were going on sale for 20% or more less than their tag price, the China Association of Auto Manufacturers withdrew on Saturday from the agreement it had negotiated with Tesla and 15 local automakers just two days before. It spills plenty of egg on lots of faces.

Theoretically, the ambiguously worded, non-binding commitment to uphold "healthy competition" and refrain from "abnormal pricing" seemed to allow opportunity for manufacturers to continue luring customers, as Tesla did by providing cash incentives to some customers soon after signing the contract. However, it rapidly became apparent to the China Association of Auto Manufacturers — or was made evident to it — that such wording could go against the letter of China's anti-monopoly statute. This legal risk should have been addressed in advance by the association, the sixteen manufacturers as well as the Ministry of Industry & Information Technology who witnessed the agreement.

Due to the refusal of Volkswagen and others to sign, the agreement would have been difficult to uphold in any case. Now that sales are up, everyone is once again faced with the decision of whether to risk profitability — and in some cases, longer-term viability — for the possibility of a quick sales bump.

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