BMW China Dealers Press Auto Maker for More Financial Support – Wall Street Journal

Posted: Wednesday, April 15, 2015

China dealers have called on BMW, whose logo is pictured here, for better financial terms.

SHANGHAI—In a fresh rift between BMW AG


and its distributors in China, a group of dealers said it would miss sales targets unless it gets better financial terms from the German luxury car maker.

In a letter sent by the group to BMW earlier this week and reviewed by The Wall Street Journal, dealers pressed BMW to set more realistic sales targets, lower wholesale prices and extend grace periods for payment to tide over dealers grappling with high inventories amid weakening demand.

BMW aims to sell 500,000 cars in China this year, representing a roughly 10% rise from the year-earlier period, said two dealer executives who signed the petition. “That’s too much. We had bought too many cars last year and many of them are still sitting in our showrooms,” said one of the executives.

A spokeswoman for BMW in Germany said that in China, as elsewhere in the world, the company keeps a close eye on the market and economic situation constantly.

“We’re in constant dialogue with our dealers,” she said. BMW would issue a statement Wednesday outlining new commercial arrangements with its Chinese dealers, she added.

BMW said in mid-March that it expected upper single digit growth in sales in China in 2015.

In a similar letter sent to the company late last year, dealers complained sales targets were too high in light of China’s slowing economic growth and an anticorruption crackdown on government officials that has hit purchases of luxury goods, including cars. At that time, dealers also called for larger cash rebates from the Munich-based car company.

In January, BMW agreed to offer about 5.1 billion yuan ($820 million), in subsidies to its dealers in China.

Now dealers say they have mostly used up those subsidies in the form of discounts to consumers in the first quarter. “We feel huge pressure. Discounts are still widening,” said another dealer executive.

Growth in new-car sales in China has continued to ease amid a softening economy which grew in the first three months of this year at its slowest quarterly pace in six years. Data from the official China Association of Automobile Manufacturers show that foreign car makers sold three million vehicles for just a 1% gain in the first quarter compared with the year-earlier period.

While tepid car-sales growth has also influenced relations between other car makers and their Chinese dealers.

In January one of Toyota Motor Corp.


’s China units paid 1.24 billion yuan in subsidies to its dealers, according to China Automobile Dealer Association, a government-backed trade group. A spokesman for Toyota China declined to comment. A spokesman for FAW Toyota Motor Co. acknowledged that the company offered subsidies to dealers but declined to disclose the size.

Volkswagen AG


’s Audi AG


had also agreed to pay a package of about 2 billion yuan in incentives to its Chinese dealers, according to a person familiar with that program. “As in all markets, Audi has bonus programs for its sales network in China on a regular basis,” a spokesman for Audi in China said.

The Chinese government has been scrutinizing the relationship between Chinese dealers and foreign auto makers more closely as part of a broader examination of how cars are sold in the world’s largest market for cars.

—– Rose Yu and Colum Murphy


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