While China’s auto market kept expanding last year, the economy slowdown and the increased pressure have brought slower than expected sales in 2014 – leading to Chinese car dealers asking for compensation from the carmakers.
The local sales network have set quotas to deliver throughout the year from the automakers and failing to achieve them leads to the loss of year-end bonuses, which many dealers hoped would save them from incurring losses throughout the year. But after years of double-digit increases, the mounting pressure has rendered a slowdown in the world’s largest auto market. This is why BMW’s board member for sales and marketing Ian Robertson believes the demands for compensation amid the slowing market are becoming an industry-wide problem, exacerbating issues especially between the global foreign automakers and their local dealer partners.
The carmakers have been called by the China Automobile Dealers Association (CADA) to help alleviate some of the losses incurred by their sales network partners – with the industry body saying (in an unprecedented media move) that the largest luxury automaker in the world has already signed a deal to subsidize its dealers with 5.1 billion yuan ($820 million). “This is an industry issue. The market slowed down quite a lot in the last quarter. We expected the market to normalize. In the first quarter it was business as usual. It started to slow in Q2. The dealership business model is changing. In the past it was driven by new cars. Three years ago it was all cash and no trade in,” says Robertson.
According to the BMW executive, in order to secure better profits, the dealers should adapt and expand their businesses by developing new sources of revenue – such as selling both new and used cars, and also offering parts, servicing and financial options.