China unveiled its first unified cost calculation rules for vehicles on Wednesday, a move expected to fill a long-standing standards gap in the auto industry and help curb disorderly price competition.
The unified rules, which currently remain a group standard, were led by the China Association of Automobile Manufacturers and jointly developed by 18 major domestic automakers — including China FAW, Dongfeng Motor, Nio, Xpeng, Li Auto, Xiaomi and BYD. It aims to provide a vehicle cost and expense calculation model for automakers that produce and sell vehicles in China.
The rules come as intense price competition has become a notable feature of the domestic auto market. CAAM said the new rules are based on the operating characteristics of the auto sector and target gray areas and common disputes in cost accounting, while balancing compliance requirements with practical flexibility.
“For the first time, unified cost and expense calculation rules have established a transparent and comparable cost reference system for the industry,” said Fu Bingfeng, executive vice-president and secretary-general of CAAM.
“The standard also provides a unified yardstick for industry associations to carry out self-discipline management, helping the sector build an internal governance mechanism based on self-restraint and self-regulation,” Fu said.
In recent years, waves of new model launches and intensifying competition in China’s auto market have pushed many automakers to cut prices in a bid to defend or expand market share, putting growing pressure on industry profits.
The China Passenger Car Association said that from January to May, China’s auto sector posted total profits of 144 billion yuan ($21.3 billion), down nearly 20 percent year-on-year, with a profit margin of 3.4 percent.
“At this moment, it is especially necessary and timely to introduce a series of self-discipline measures that further refine and standardize corporate cost management practices, and clarify the direction of such efforts,” said Zhang Shulin, former CAAM secretary-general.
According to the association, a key feature of the new rules is a unified approach to calculating net vehicle revenue. Under the standard, automakers should deduct promotions, rebates, value-added taxes, logistics costs and warranty-related expenses from net revenue. For in-house parts procurement involving related-party transactions, the rules set a fair-value floor that should not be lower than the material cost of the parts, and require traceable documentation throughout the process.
The provisions are intended to provide market participants with a fair and comparable reference model and reduce data distortion caused by differences in accounting methods, CAAM said.
“It is both an operational guide for enterprises to standardize internal accounting and a common language for the industry to conduct horizontal benchmarking and improve cost management,” said Mei Zhenxin, president of the country’s electrical and mechanical industry price association.
“It thus has important practical value for automakers seeking to improve refined cost management,” Mei said.
Looking forward, CAAM said it will continue to promote the standard beyond the 18 drafting companies, and gradually turn it into a common reference for cost calculation among all automakers in China.
Tanks to chinadaily.com.cn
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