May 2017
Administrative Measures for Automobile Sales(Mainland China)
2017.4.5
James Cheng
On April 5, 2017, the Ministry of Commerce promulgated the Administrative Measures for Automobile Sales (the "Measures"), which will go into effect on July 1, 2017. The Measures cover issues such as the classification of automobile sales operators, regulation on conduct in automobile sales and the market order for automobile sales as highlighted below:
I. Clear categories for operators in the automobile sales business
Under Article 6 of the Measures, operators engaged in automobile sales are classified as suppliers, dealers and after-sale service providers. A supplier refers to a domestic producer that provides automobile resources to distributors, or an operator that profits from transfer sales from domestic producers and also engages in distribution, or an operator that imports cars from overseas. A dealer refers to an operator that obtains and sells automobile resources. An after-sale service provider refers to an operator who provides after-sales automobile repair and maintenance services.
II. Increased transparency of automobile sales
First, Articles 10, 11, 12 and 13 of the Measures provide that in the sale of an automobile, the dealer shall clearly show the automobile, the accessories and the price of services provided, as well as provide specific after-sale service policies, quality assurance and proof of authorized dealer. In addition, a dealer may not charge any fee on top of the list price, and an after-sale service provider is also required to indicate the technologies used for the service, the quality of its service and its service scope to consumers. Article 14 of the Measures provides that consumers shall have the right to freely choose the suppliers or dealers of products or services such as accessories, financing, insurance and emergency support. Article 18 of the Measures stipulates that suppliers and dealers shall establish a comprehensive system for consumer complaints. Articles 15, 27 and 28 of the Measures further provide that dealers and suppliers shall conduct information recordation and archive their sales information files.
III. Restriction on control of car dealers by car suppliers
Under Article 24 of the Measures, a supplier shall not require a dealer to also provide after-sale service functions, or prohibit a dealer from selling another supplier’s goods. In addition, a supplier shall not impose any restrictive requirements on dealers with respect to sales quantities, inventory, provision of accessories, advertising, business premises, after-sale services, resale, human resources, finances, etc. Meanwhile, Articles 19, 20 and 22 of the Measures also stipulate that a supplier bears certain obligations to dealers with respect to the licensing term, service support and buyback.
IV. Analysis
According to the specific provisions of the Measures, the implementation of the Measures will change the previous practice of bundling sales and maintenance, and dealers may now carry automobiles from different manufacturers at the same time, while consumers now have more information and a right to choose. As a result, the existing single brand sales model, i.e., the 4S model, may be fundamentally changed with reduced monopoly in the automobile sales industry, and there may be a potential increase in compliance obligations of automobile suppliers.
James Cheng
On April 5, 2017, the Ministry of Commerce promulgated the Administrative Measures for Automobile Sales (the "Measures"), which will go into effect on July 1, 2017. The Measures cover issues such as the classification of automobile sales operators, regulation on conduct in automobile sales and the market order for automobile sales as highlighted below:
I. Clear categories for operators in the automobile sales business
Under Article 6 of the Measures, operators engaged in automobile sales are classified as suppliers, dealers and after-sale service providers. A supplier refers to a domestic producer that provides automobile resources to distributors, or an operator that profits from transfer sales from domestic producers and also engages in distribution, or an operator that imports cars from overseas. A dealer refers to an operator that obtains and sells automobile resources. An after-sale service provider refers to an operator who provides after-sales automobile repair and maintenance services.
II. Increased transparency of automobile sales
First, Articles 10, 11, 12 and 13 of the Measures provide that in the sale of an automobile, the dealer shall clearly show the automobile, the accessories and the price of services provided, as well as provide specific after-sale service policies, quality assurance and proof of authorized dealer. In addition, a dealer may not charge any fee on top of the list price, and an after-sale service provider is also required to indicate the technologies used for the service, the quality of its service and its service scope to consumers. Article 14 of the Measures provides that consumers shall have the right to freely choose the suppliers or dealers of products or services such as accessories, financing, insurance and emergency support. Article 18 of the Measures stipulates that suppliers and dealers shall establish a comprehensive system for consumer complaints. Articles 15, 27 and 28 of the Measures further provide that dealers and suppliers shall conduct information recordation and archive their sales information files.
III. Restriction on control of car dealers by car suppliers
Under Article 24 of the Measures, a supplier shall not require a dealer to also provide after-sale service functions, or prohibit a dealer from selling another supplier’s goods. In addition, a supplier shall not impose any restrictive requirements on dealers with respect to sales quantities, inventory, provision of accessories, advertising, business premises, after-sale services, resale, human resources, finances, etc. Meanwhile, Articles 19, 20 and 22 of the Measures also stipulate that a supplier bears certain obligations to dealers with respect to the licensing term, service support and buyback.
IV. Analysis
According to the specific provisions of the Measures, the implementation of the Measures will change the previous practice of bundling sales and maintenance, and dealers may now carry automobiles from different manufacturers at the same time, while consumers now have more information and a right to choose. As a result, the existing single brand sales model, i.e., the 4S model, may be fundamentally changed with reduced monopoly in the automobile sales industry, and there may be a potential increase in compliance obligations of automobile suppliers.
