A new warranty law that took effect in China this week could increase costs for smaller domestic carmakers and eventually lead to consolidation in China’s fragmented industry.
The new ‘lemon law’ gives Chinese consumers nearly as much protection as those in the US to obtain free repairs or replacement of defective vehicles.
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Global manufacturers are well equipped to meet the regulations which are no more stringent than in their home or international markets. But, for many smaller Chinese makers with less rigorous quality control, the tougher requirements could sharply increase warranty related costs.
Analysts said the new law will add pressure on many local brands from 2015. China has more than 70 registered carmakers and many are already feeling the pressure from a slowing economy and tougher fuel economy requirements.
As in other manufacturing industries, such as steelmaking and shipbuilding, policymakers in Beijing are trying to encourage automakers to merge and combine operations to create bigger and more globally competitive home grown firms.
Under the new law, consumers have the right to a full refund or replacement vehicle if serious safety issues are not resolved after two repairs within a two year, 50,000km (30,000 miles) warranty period.
Until now, dealers and automakers in China were under no obligation to buy back or replace cars with defects.
