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Luxury Car Prices Slashed

Luxury Car Prices Slashed

Premium car maker Jaguar Land Rover PLC has slashed prices for two Range Rover sport-utility vehicles and a Jaguar sports car by up to 19% in China amid increased scrutiny by the Chinese government of foreign car makers' pricing policies.

The luxury car maker said Friday it will reduce prices for three models in its portfolio in response to an investigation by the pricing and antimonopoly division of the National Development and Reform Commission, China's top economic planning agency.

"We will do everything possible to work together with our Chinese retail dealer partners to offer customers the highest levels of support in all respects, whether that is vehicle sales or after-sales service," said Bob Grace, regional president at Jaguar Land Rover Greater China, in a statement.

The NDRC didn't respond to requests for comment.

The price reductions will have "some impact" on the profitability of JLR's China operations, said Anthea Wang, a spokeswoman for Jaguar Land Rover in China, but said the company is "confident" it can have sustainable development in the market.

She said the company took the investigation "very seriously “and as a result” came up with a proposal for voluntary adjustment for the three models."

She also said the company is "reviewing and discussing how to optimize our service standard and after-sales pricing system," adding that it is a "work in progress."

China has strengthened its regulation of pricing in recent years under its antitrust law that was enacted in 2008. It has taken aim at a variety of foreign brands ranging from pharmaceutical producers to the baby-formula milk-powder industry, sometimes leading to considerable fines. Another arm of the Chinese government blocked a proposed alliance of European shipping lines last month, marking only the second time it has blocked a corporate combination since its antitrust law went into effect.

Jaguar Land Rover, owned by India's Tata Motors Ltd, has been one of several foreign luxury-car-makers that have been accused by China's state media of earning exorbitant profits in China by overcharging consumers by dominating the market and controlling the sale of auto parts.

In August last year, state broadcaster China Central Television cited the price of a Range Rover as an example, saying the luxury sport-utility vehicle sells for at least 1.89 million yuan ($305,000) in China while the same vehicle could be bought for the equivalent of $87,000 in the U.S.

Similar reports on Germany's top three premium brands— Audi AG, BMW AG and Daimler's Mercedes-Benz—have also been aired from time to time over the past year.

Nicholas Speeks, head of Mercedes-Benz's sales and service arm in China, said on Tuesday that the company has had conversations with the NDRC and that the government agency had expressed some concerns. Mr. Speeks didn't specify the nature of those concerns, and Daimler has said it isn't under investigation. All three German car makers declined to comment on Friday.

The price reduction by JLR comes at a time when China's ambition of nurturing homegrown automotive champions looks increasingly distant. As a whole, the market share for Chinese brands in the domestic sedan market fell to 22% in the first half from 28% a year earlier, according to the government-backed China Association of Automobile Manufacturers.

The Range Rover 5.0 V8, which has a price that tag starts at 2.89 million yuan, will now sell for 2.65 million yuan. A Ranger Rover Sports 5.0 V8 that has a price tag starting from around 1.98 million yuan will be lowered to 1.82 million yuan. Jaguar F-Type Cabriolet is now sold from 1.05 million yuan will be sold from 848,000 yuan.

While pressure from the government could act as a catalyst for price adjustments, market forces would have a greater influence on price levels for high-end cars that sell in greater volumes, said Yale Zhang, managing director of consultancy Automotive Foresight.

He said he doubted Friday's announcement would have a significant impact on Jaguar Land Rover in China because the models chosen for the price adjustment aren't high volume models. "JLR is just paying lip service to NDRC," Mr. Zhang said.

Recommended prices on some models were unrealistically high and that dealers regularly offered steep discounts, Mr. Zhang said. "This can undermine a luxury brand," he said.

Source: Wall Street Journal, July 2014 

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