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India follows in the footsteps of China and slaps huge penalty on top car makers

The ink has hardly dried on the print about China fining about 12 Japanese car parts makers a hefty $ 202 million for malpractices including price manipulation. India has taken a leaf out of China’s book and we have news that the Indian government has imposed penalties on top car manufacturers.

automobile spare parts

The Competition Commission of India, according to recent reports, has slapped fines totaling over Rs. 25.5 billion on leading car manufacturers in the country for anti-competitive activities. 14 car manufacturers were found to have been indulging in practices such as slow down of parts flow and controlling availability, thus making spares more expensive for consumers. The car manufacturers found to be indulging in such alleged underhand practices include globally famous names like Volkswagen AG, Skoda, BMW AG, Daimler Mercedes Benz, Fiat, Ford, Honda Motor Co, General Motors, Toyota Kirloskar and Nissan. How did the CCI arrive at this figure? It computed the fine as 2% of the average turnover of car companies. The amount may seem huge but given the whopping profit margins on spares, it may be a measly drop in the bucket for manufacturers. International car manufacturers are not the only ones to feel the heat. Even desi companies like Tata Motors must cough up Rs. 1346 crores. The revenues from Jaguar and LandRover have been clubbed while computing the fine for Tata. Maruti Suzuki will be poorer by Rs. 471 crores. The CCI has given these companies 60 days to come up with the fine. Car manufacturers are aghast and have naturally gone in for a stay order from the Madras High Court against CCI’s demands.

CCI had originally filed a petition in 2011. The petition alleged that car manufacturers are indirectly or directly manipulating operations of service stations that charge exorbitantly for spares used in repairs and services of automobiles. In majority of cases the consumer has no option but to pay since spares are not available in the open market and service stations wash their hands of responsibility should a consumer insist on using third party spares if at all available. For consumers, this order represents a leap forward since they will be able to buy spares from open markets at greatly reduced prices. Auto manufacturers warn against this since it would lead to proliferation of substandard spares that would reflect on the performance and affect their reputation.

Interestingly, when car manufacturers buy spares from auto ancillary units, they have defined codes of costing which includes cost of material and a certain amount for labour and overheads, leaving ancillary makers with little profits. However, the same spares are sold at ten times the manufacturing cost by car makers, branding them as “originals” and users have no alternative but to buckle under or face the risk of counterfeit parts. How come auto manufacturers do not apply the same rules of purchase when they sell parts and make whopping profits on spares?

Pics Courtesy :Burnyourfuel