China's official new regulations on automotive industry pricing: "Significant legal risks exist if the actual factory price is lower than its production cost."

On February 12, the State Administration for Market Regulation officially released the "Guidelines for Compliance with Pricing Behavior in the Automotive Industry" (hereinafter referred to as the "Guidelines"), which clearly states that "actual factory prices below production costs" pose significant legal risks. The Guidelines were approved at a meeting of the Administration on February 9 and will take effect from the date of publication.

The Market Regulation Administration emphasized in the announcement that currently, the automotive industry is facing illegal behaviors such as not pricing transparently as required and price fraud, which harm the interests of consumers and operators, disrupt fair competition in the market, and are detrimental to the high-quality development of the industry. Based on the current development realities of the automotive industry, the Guidelines further clarify behavioral boundaries, unify regulatory rules, guide automotive production and sales enterprises to operate in compliance with the law, and promote the formation of a market order characterized by quality and fair pricing.

The Guidelines consist of five chapters and 28 articles, mainly covering the following five aspects.

First, clarify overall principles and requirements. Clearly state the purpose, basis, and scope of application of the Guidelines, specify the basic principles that pricing behavior should follow, and encourage industry associations to strengthen self-discipline and promote compliance in industry pricing.

Second, refine pricing behavior norms for automotive manufacturing enterprises. Clearly specify pricing compliance requirements at all stages from complete vehicles to components, from pricing strategies to sales behaviors. Implement full-process price management, strengthen fair pricing constraints, standardize promotional and pricing behaviors, and legally combat improper pricing practices.

Third, clarify pricing behavior requirements for automotive sales enterprises. Focus on the new car sales segment, aiming to regulate prominent issues such as not pricing transparently as required and false promotions. Establish a risk warning mechanism, encouraging platforms to provide dual warnings of operational and consumer risks for significantly low pricing behaviors.

Fourth, guide enterprises to strengthen internal compliance construction. Encourage automotive production and sales enterprises to establish internal price compliance management mechanisms, including six mechanisms: price decision-making, sales contract management, internal supervision, price emergency response, risk prevention and control, and price compliance training, to achieve full-process control of pricing behavior.

Fifth, supplementary provisions. Fully leverage the role of industry associations, guiding associations to formulate detailed implementation measures based on the Guidelines.

In response, Cui Dongshu, Secretary-General of the National Passenger Car Market Information Joint Conference, stated that regulating pricing in the automotive industry will promote high-quality development in the automotive sector, significantly enhance the cultivation of automotive brands, and shift the industry focus from "price competition" to "quality competition." In the short term, Cui Dongshu believes that consumers are very sensitive to car prices, and "price competition" will lead consumers to develop a habitual mindset of "waiting for price reductions." Regulating prices will create a reassuring shopping environment for consumers and help improve the wait-and-see sentiment regarding car purchases.

"Actual factory prices below production costs" pose significant legal risks

Article 10 of the Guidelines explicitly lists nine types of pricing behaviors that "pose significant legal risks," including those "aimed at eliminating competitors or monopolizing the market" and "causing actual factory prices to fall below production costs."

These behaviors include: factory prices of complete vehicles and components being below production costs; using high specifications to masquerade as low specifications to indirectly lower prices; and using discounts, subsidies, and other preferential methods to make actual prices lower than costs And through methods such as issuing more goods with fewer invoices, bulk discounts, and lowering listed prices to indirectly reduce prices.

The new regulations adopt a strict definition of "production costs," clearly including manufacturing costs and period expenses composed of management fees, financial fees, and sales expenses.

Full Chain Coverage of Production and Sales

Chapter 2 of the "Guidelines" clearly requires automobile manufacturers to implement full chain price behavior management for the sales of complete vehicles and parts, financial services, and other links to ensure that pricing behavior is standardized. Enterprises should establish clear and explicit rebate policies, agree with dealers in advance through contracts, and respect the dealers' autonomy in pricing.

Article 9 of the "Guidelines" explicitly lists four types of "price collusion behaviors" between automobile manufacturers and between automobile parts manufacturers that carry "significant legal risks," including fixing or changing the price levels of complete vehicles and parts, fixing or changing the price fluctuation ranges, and agreeing to adopt a unified price calculation standard.

Encouraging Abnormal Pricing Monitoring on Platforms and Regulating "Paid Unlock" Function Charges

The "Guidelines" state that operators of automobile trading platforms shall fulfill their platform responsibilities in accordance with the law and standardize the pricing behavior of operators within the platform as required. When the prices displayed by operators within the platform are significantly lower than the manufacturer's suggested retail price or market price levels, platform operators are encouraged to promptly remind operators within the platform to operate in compliance with the law, while also alerting consumers to potential transaction risks.

Article 13 of the "Guidelines" clearly states that automobile manufacturers should standardize the charging behavior of the "paid unlock" function. For functions with a free period, the sales process should inform consumers of the free period, subsequent charging standards, and other relevant information, and consumers should be reminded again before the free period ends; for differentiated value-added functions that require charges, the sales process should clearly inform consumers, and charges cannot be applied for differentiated value-added functions that are not clearly communicated.

Encouraging Enterprises to Build Compliance

Chapter 4 of the "Guidelines" specifically provides guidance on internal compliance construction for enterprises, encouraging automobile manufacturing and sales enterprises to establish price compliance management mechanisms, including six components: price decision-making mechanisms, sales contract management mechanisms, internal supervision mechanisms, price emergency response mechanisms, risk prevention and control mechanisms, and price compliance training mechanisms.

The new regulations require enterprises to supervise and review pricing, adjustments, promotions, and other behaviors, regularly assess the risks of pricing behavior, and identify potential compliance risks. For pricing behaviors that may trigger public opinion or collective complaints, enterprises should provide early warnings and take corresponding preventive measures