China: dealer tensions cloud market prospects image

Lately, the news coming from China are not focused on the new year’s sales prospects of the auto industry, but on the open rebellion that the local sales networks have staged over industry strategies that led to reduced profits last year.

The world’s largest auto market seems to be on the final approach towards maturity, as the years of double-digit growth seem to have come to an end – but the latest tensions between dealers and the foreign automakers only threaten their prospects of growth. Under the umbrella of the state-backed China Automobile Dealers Association the retailers are gathering to form a coalition – they seek smaller sales targets and a larger chunk of the profits coming from vehicle sales. According to the industry trade body, Bayerische Motoren Werke AG, the largest premium automaker in the world, has already agreed last week to subsidize its sales network with 5.1 billion yuan ($820 million). And that would only represent an incentive for dealers of Toyota, Volkswagen or GM cars to require the same from their car making partners.

China, a market that increasingly dominates the automotive world – especially with the turmoil seen in the European and Latin American regions – now poses a threat to the automakers that count it as their largest market – such as the second and third largest carmakers globally – Volkswagen AG and General Motors. The face pressure to either lower their profit count or deal with slower sales increases. Last year sales rose by 7%, a “normal” figure according to industry analysts – but half the pace seen in 2013.