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China Business & Finance  Added
Strict environmental rules hit luxury carmakers’ China shipments

McLaren, Lamborghini, Aston Martin and Morgan blindsided by ‘endurance test’

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JULY 14, 2017 by: Tom Mitchell in Beijing and Peter Campbell in London
While China’s insatiable appetite for luxury goods has been a boon for Bordeaux vintners and Swiss watchmakers, carmakers such as McLaren and Lamborghini are finding it impossible to export into the world’s largest car market.

So-called “small-volume manufacturers” that make tiny batches of high-end vehicles had been exempt from Chinese environmental rules that measure whether engines meet emissions limits after clocking up 160,000km.

But a rule change quietly imposed when a new Clean Air Act came into effect in March removed the special dispensation, allowed because most super cars are typically driven about 5,000km a year, leaving manufacturers including Aston Martin and Morgan Motor Company “blindsided”.

“It has been a miserable journey,” said a senior executive at one of the affected car companies. “There is a growing backlog of vehicles. We have all missed getting cars into the market for second and third quarter sales.”

Chinese president initiated a crackdown on conspicuous consumption five years ago, as part of a wide-ranging anti-corruption campaign. In December, Beijing imposed a 10 per cent tax on cars costing more than Rmb1.3m (or about 190,000 dollars) in a bid to “guide reasonable consumption”.

But it remains unclear whether the environmental rule change is part of the consumption crackdown, and China’s environment ministry and inspection and quarantine officials did not respond to requests for comment.

After months of impasse, the dispute has prompted a diplomatic démarche, with the British ambassador to Beijing writing to the Chinese government this month to protest against the stand-off.

“Without an exemption . . . SVMs are currently unable to access the Chinese market and deliver vehicles to customers who have already ordered their vehicles,” wrote Barbara Woodward in a July 10 letter.

A senior McLaren executive also travelled to Beijing this week for meetings with Chinese officials, according to two people briefed on the trip.

Under the new rules, models introduced before the changes are exempt. But all cars released since March must comply with the “endurance tests” before they can be sold in the country.

Morgan said the company had three cars that had been “halted midway through the import process in China . . . despite the fact that the vehicles have been manufactured to exactly the same specification as have previously been accepted”.

The company said: “This issue is obviously a huge concern for not only the dealer and manufacturer but also the customers.”

Complying with the latest tests may take up to six months, according to two people familiar with the process — pushing any sales of new, uncertified models into next year.

McLaren, which said it is “working with the authorities”, is still hoping to deliver its new 720S model — only the second in its “super series” — before the end of the year, which would only be”a few months” behind other markets.

Aston Martin said it has built a compliance programme into its business plan for new models, and Lamborghini would only say it was “aware” of the new rules and intended to abide by them.

In a briefing paper drafted earlier this month, the UK’s Society of Motor Manufacturers and Traders argued that Chinese authorities “should take into account regulatory practices in other regions including Europe and the US”, which exempt SVMs from the durability tests that premium and mass market vehicles are required to pass.