Talk of over-pricing puts automakers in hot seat

What further reassures foreign automakers is the fact that the auto industry in China is too large and too important to be crushed under monopoly charges.

The China Association of Automobile Manufacturers says 19.3 million cars were delivered in China last year, while the output value of the industry was more than 5.3 trillion yuan.

Unlike other sectors, the Chinese automobile industry has a healthy amalgamation of Chinese and foreign brands. Except for some super luxury brands, most of the foreign automakers have domestic partners in China. Experts say the investigations will hurt the prospects of Chinese partners and fail to bring the prices down.

To address the price problem, the government has to strike out some inappropriate regulations, says Zeng of LMC. The first regulation to amend, he says, would be the brand management method imposed by the government in 2005, which requires auto dealers to get authorization from manufacturers before they can sell cars. "In the US market, it is just the opposite," Zeng says. "If a brand wants to enter a regional market, they have to get approved by the dealers association.

"In China, automakers, or brands, have a much bigger say than in other countries. Brands want to maintain the profit margin and the premium profile, so dealers have very little power to lower the prices."

Such authorization is found in very few sectors in China.

"Only when this outdated regulation is phased out will we see the results of fair competition," Zeng says. "Free competition is the most important."