Jaguar Land Rover is battling to stop car dealers sending its cars to China and other hugely lucrative markets, which is compounding shortages in the west and widening price gaps globally.
Much like many higher-end car makers, the automotive giant has strict rules for dealers: if they do not stick to their own markets, they face fines or being struck off for future trades.
The rules have caused recent frustration among dealers who are suffering a dearth of business amid supply constraints, due to a lingering international parts shortage.
In the UK, a new Land Rover Evoque starts at £32,620. In Saudi Arabia, however, the sterling value of its listing starts at a pricier £43,327, while Chinese and South African buyers will fork out the yuan and rand equivalents of £47,463 and £55,065 apiece, according to JLR listings.
Similarly, starting prices for the Jaguar F-Pace performance SUV come in at £46,250 in the UK, compared to £55,817 in China and £64,860 in South Africa.
While importing so-called grey market vehicles into China is not illegal, following the easing of rules in 2015, it is frowned upon by automotive makers. Dealers who have spoken to The Telegraph say some colleagues have been caught exporting to markets such as China and threatened with sanctions by car companies, including being fined the profits made on the trade, which can run into millions of pounds.
A slide from a JLR presentation to international car distributors late last year, seen by The Telegraph, warns dealers about rules for its new Land Rover L460. It says exporting and trading with re-sellers is forbidden and profits can be clawed back for doing so. Ultimately it says franchises’ contracts can be terminated for breaching the rules, which would be a death blow to many companies.
Jaguar insiders insist their model keeps supply fair and stops richer markets hoovering the cars up. Dealers, however, argue the cars are theirs and they should be able to send them to where they please.
One major bone of contention is over how the rules are policed. To be successfully enforced, car makers need to know what cars show up, and where.
Many new vehicles around the world are fitted with life saving technology which can alert the authorities to a crash or other incident, sharing its location in the process. JLR says it doesn’t use this technology or any other to track vehicles.
A spokesman said: “Jaguar Land Rover does not track any vehicles that we have sold to retailers or directly to our customers.
“We fully abide by all trading and privacy laws in each global market, and like all automotive manufacturers, we have mutually agreed terms with our retailers with regards to the sale and export of our vehicles.”
Yet dealers have been left scratching their heads over how the company knows its cars are entering markets such as China, particularly after Beijing recently tightened its data protection laws instituting rules comparable to Europe’s GDPR regulation.
At Chinese ports, data is not freely available to anyone other than customs officials and the owner of the goods, says Peter Lu, a partner at law firm Baker McKenzie.
“Unless there’s a suggestion that something illegal is happening, third parties don’t have access to import information from Chinese ports.”
JLR counts China as its largest market, with £4.24bn of sales out of a global total of £18.25bn. It overtook the UK in 2012, the same year JLR announced that it would set up a car plant in the world’s second largest economy – its first outside the UK – as it rode the wave of a booming Chinese middle class.
It produces the Land Rover Evoque, Discovery Sport and Jaguar E-Pace models at a site in Changshu, near Shanghai, which it co-owns with state-owned car maker Chery.
But the company is struggling to capitalise on that demand as the industry battles a shortage of computer chips and components which are ubiquitous in modern cars, which is also pushing up costs. Meanwhile, China has sustained numerous long-scale lockdowns.
Employees assemble a Jaguar E-Pace compact sport utility vehicle (SUV) on the production line – Qilai Shen /Bloomberg
It pushed JLR to a pretax loss of £412m for the year through March, compared to a £662m profit the year before. Its operations were “significantly impacted by the constraint on production and sales resulting from the global chip shortage,” it said.
Other European car manufacturers, however, have had record profitability, ploughing the computer chips they can get their hands on into more profitable vehicles. These are often at the most luxury end of the market, such as Volkswagen’s Bentley marque, or BMW’s Rolls-Royce. JLR, without such an equivalent, was unable to do that to the same degree and buyers are having to wait up to a year to acquire their cars.
With fewer sales, the impact of JLR cracking down on the grey market only increased. “Supply has definitely made these rules worse,” explains one franchisee.
In 2015, Chinese officials approved unofficial imports at ports including Shanghai, Tianjin and Guangdong in a bid to spark competition and get car makers to lower their prices in the country.
But it did not work as planned, says Iris Pang, chief economist for Greater China at ING.
For imports such as makeup and skin cream, Chinese buyers are happy to snap up bargains, but for big ticket items like cars, they want guarantees and aftercare and will pay extra for it, she says.
“Most consumers, if they buy a mid level car or above, they usually choose to buy it from the distributor because you have the proper warranty,” adds Pang.
The JLR spokesman says: “Our network of retailers are experts and have the knowledge, skills and facilities to ensure our customers’ highly technical vehicles benefit from a protected warranty. By buying a car through our network, customers will know their vehicle complies with local market regulations.”
However, that also means a large gap in price has been maintained, tempting dealers to try and swoop in and make a killing.
Rules around resale are common when it comes to limited-run high-end vehicles. Car makers are keen that their customers do not behave like ticket touts, artificially inflating prices for loyal clients.
Mercedes and BMW also attempted a crackdown just after China liberalised its import rules, getting US dealers to vet buyers and asking them to turn down cash payments for cars.
For dealers choosing to sell in China over Europe or America, however, a quick buck may prove too tempting.