(China Daily)
Updated: 2008-02-25 14:20

Rules governing auto sales in China should be enhanced to establish a more efficient and transparent system and better protect distributors and customers, according to industry experts.

Luo Lei, deputy secretary-general of the China Automobile Dealers Association in Beijing, says adjustments under consideration should better balance the interests of auto manufacturers and distributors.

Experts point out that current sales approaches place too much authority in the hands of automakers and put distributors in a weak position.

"With the control of franchising rights, international automakers established numerous sales outlets in China, which brought disordered competition among domestic distributors of the same auto brand," says Luo. "The market is lacking in an efficient mechanism to check the power of automakers and protect the sellers' interests."

The current management environment increases sellers' management costs and dilutes profits of distributors, he says.

Customers and distributors applaud the proposed changes as an important step forward for the entire auto distribution system in China.

Along with increasing demands from customers and distributors to revise the current measures, experts say greater efforts should first be made to enforce current rules.

Zhang Boshun, secretary general of China Association of Automobile Manufacturers, says the establishment of an efficient and transparent auto distribution system not only calls for fair governing measures but also needs such rules to be enforced.

"It is still open for discussion whether the current rules should be revised or reserved," says Zhang. "But market participants who fail to comply with current rules are disturbing the industry operation."

First introduced in 2005, current regulations were designed to standardize auto sales, promote healthy development of the market and protect the rights of consumers.

But since the measures took effect three years ago, stakeholders have been calling for better protection of interests among suppliers, sellers and customers. Industrial insiders say implementation of the rules is a problem.

Under current measures, auto dealers defer to companies authorized by auto suppliers for sales, service and dealerships in a particular brand. Auto suppliers then have the authority to develop sales plans and service networks, which includes forecasts of operations, plans for outlet distribution, establishment of a dealership network and outlet construction and standards for after-sales services.

The current rules require that auto suppliers should strengthen management over their networks, standardize sales and after-sales services, and publish the names of enterprises that are authorized - and not authorized - to sell its cars. They are prohibited from interfering in the construction of dealerships, the purchase of equipment and operations of distributors. They are also not allowed to impose sales quotas or force combined sales of brands onto the distributors.

Yet dealers say many suppliers set unrealistic sales quotas. They are now urging a limit be set on suppliers' authority.

Industry insiders say further efforts should be made to require suppliers to better administer operations. They believe the sound development of the distribution system requires supervision over auto suppliers.

"It is time to set necessary limitations on automakers' authority in the distribution system," says Luo. "The new specifications will be complementary to current measures and well balance the interests of automakers, sellers and customers."

According to Luo, one of the members drafting the new measures, the latest version will not change current rules entirely, but aims to specify auto suppliers' responsibilities and provide more guidance to sellers.

He says the draft specifications are in the process of soliciting comments and suggestions from experts and are likely to be introduced this year.