Germany’s luxury car manufacturer Bayerische Motoren Werke AG (BMW Group) is reported to have agreed a 5.1bn Yuan (US$820m) subsidy to its distributors in China. The payment, estimated to be the largest ever paid in China by an automaker, will help retailers to cover losses.
Media reports suggested that the retailers had asked BMW for compensation in excess of CNY6bn and had threatened to halt new orders from the group. Talks are still on to settle the issue. Another German car group, Audi has reportedly arrived at a settlement with its Chinese dealers to pay CNY2bn in subsidies.
In a statement, BMW said that many dealers in China had experienced pressures and challenges from the market in the second half of 2014. The group added that it had reached a consensus for an optimised business measures and financial allocation for the dealers to overcome short-term challenges.
Media reports quoted Song Tao, deputy secretary general of Chinese Automobile Dealers Association (CADA), who said dealers had the highest level of stockpile last year. The negotiations for financial support are part of a broader push by China’s car retailers to gain more autonomy from manufacturers, who currently decide the number and type of vehicles they sell.
Premium foreign car brands have been under pressure, on slowing economic growth and high pricing and unrealistic sales projections in the market. China’s National Development and Reform Commission (NDRC) has initiated an investigation into anti-competitive pricing practices that worsened the situation.
The Chinese market has proved lucrative for the German brands as sales expenses are much lower than Europe and the US. However, sales in the Chinese market slowed in the first 11 months of 2014 with 9.2% growth compared to 15% a year earlier.
BMW has more than 400 outlets in China with around 100 mini retailers. From January to November 2014 the group recorded delivery of 415,200 cars in China.
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