China: automakers allegedly pay dealers because of market slowdown image

After years of double-digit growth that turned China into the world’s largest auto market and the end destination of any carmaker with global ambitions, the country seems to finally settle down to rational levels.

But the market slowdown from double to single-digit increases sees the foreign automakers scrambling down in panic as tensions between them and their local sales network partners arise. Naturally, the smaller profit margins now yield hard bargains between the auto companies and the local car dealers over the way earnings get shared. And, because of the strength of the auto dealer associations and the fact that the central government tends to be overprotective with its local businesses, the fallout seems to take its toll on some of the automakers. The main promoter of the dealer backlash is the China Automobile Dealers Association (CADA), a dealer trade body that recently said it coerced BMW – the world’s largest luxury automaker – to shell out 5.1 billion yuan ($820 million) as compensation payment to its sales network due to the smaller than expected yearly profits.

And when it comes to automakers paying hundreds of millions of dollars to keep the dealers happy, BMW (which hasn’t officially recognized the CADA cash amount) is not alone. Rivals at Volkswagen-owned Audi have also agreed to a 2 billion yuan payment coming in the form of subsidies, according to a report from Reuters that cites two persons with direct knowledge of the deal. The same case seems to be with Daimler’s Mercedes-Benz, with Reuters sources saying the third-largest premium manufacturer in the world was persuaded to award its dealers with around 1 billion yuan.

Via Reuters