Legal Flash

Feb 2016

Draft 'Administrative Measures for Automobile Sales' now released - an analysis from the perspective of the auto distribution system

  • On January 6, 2016, China's Ministry of Commerce ("MOFCOM") issued the draft Administrative Measures for Automobile Sales ("Draft Measures") for public comment. If implemented in their current form, these will involve significant changes to the business models of auto distribution and provision of aftersales services in China;
  • In the auto sales primary market, for the first time it will be possible for dealers to distribute motor vehicles without pre-authorisation by the auto makers under certain circumstances. The distribution channel monopoly of motor vehicles will be broken.
  • In the auto aftersales market, the provision of repair and maintenance services will be separated from the sale of motor vehicles. Independent aftermarket service and repair shops may emerge. Original spare parts can be freely resold among authorized repairers and independent repairers. The aftersales markets will be liberalised and face free competition.
  • Penalties for violating the Draft Measures are not financially high. However, they may well bring reputational loss to the auto makers, compromise the effectiveness of the compliance program and offer a legal basis for the dealers and consumers to bring lawsuits against the auto makers in order to protect their rights and interests. Auto makers are strongly advised to carefully consider the implications of the Draft Measures, closely monitor these regulatory developments and proactively revise their distribution agreements and policies with the dealers to comply with the new regime.

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