Brands including Volkswagen AG's Audi, BMW and Mercedes-Benz are cutting prices for new cars and spare parts in an effort to appease Chinese regulators which have accused some of them of anti-competitive behaviour.
Daimler, the parent company which makes the luxury Mercedes-Benz cars, said on Monday it was cooperating with authorities and declined to comment further.
An array of industries, from milk powder makers to electronics firms, has come under the Chinese regulatory spotlight in recent years as the government intensifies its efforts to make foreign companies comply with 2008 anti-monopoly legislation.
Anti-trust regulator, the National Development and Reform Commission (NDRC), launched an investigation into the auto industry following domestic media complaints that foreign carmakers were overcharging Chinese customers for vehicles and spare parts.
The Xinhua report, which cited regulators, made no mention of possible penalties for Mercedes. The regulator can impose fines of up to 10 percent of a company's China revenues for the previous year.
Analysts at JP Morgan said the willingness of the German manufacturers to lower prices in China reduces the possibility of high fines but in the longer term could hit profitability.
Mercedes-Benz recently announced that it would reduce prices on some spare parts by an average of 15 percent and BMW said it would cut prices by an average of 20 percent, JP Morgan said. Audi has also said it will cut prices but did not specify by how much.
In the longer run, forcing European carmakers to lower the price of spare parts and imported vehicles could see margins in China normalize to levels currently seen in Europe, JP Morgan said in a note earlier this month.
"We believe that this might happen gradually over the next five years or more," the brokerage said, adding it sees an impact on earnings per share of around 3 percent for German carmakers.
They said that if the price of spare parts and services fell 20 percent in China, Daimler and BMW's pretax profit would take a hit of around 1 percent in 2015, and Volkswagen's pretax profit would fall by just under 3 percent.