Unlike the American car market that has been red hot for 2014, China's auto sales momentum has begun to slow down. While Chinese government imposes restrictions on car sales to reduce pollution and congestion, automakers are building more factories. This is putting the dealers in a tough position, and many are taking heavy losses.
As vehicle production is rapidly increases, Chinese dealerships are under enormous pressure to meet year-end sales goals in order to qualify for bonuses. Dealer stock of unsold vehicles reached its highest point in November.
According to Automotive News, BMW has agreed to pay 5.1 billion yuan ($820 million) to its dealerships in order to subsidize their losses after they stopped ordering cars. This is an unprecedented gesture of goodwill on behalf of an automaker in order to keep their dealer network afloat during a slow sales period.
"This is an unusual move by automaker to give funding of such big scale," said Han Weiqi, an analyst with CSC International Holdings Ltd. "But in the long term, a smooth relationship with dealers is in carmaker's best interests and they have to meet dealers half way."
The German automaker delivered 415,200 vehicles in China in the first 11 months of 2014, operating through a network of more than 440 BMW sales outlets and 100 Mini stores. BMW plans to help its dealers expand activities beyond selling new cars, including financial services and used car sales.
BMW's payout may pressure other brands to offer similar assistance to their struggling dealer networks. For example several Toyota dealerships, have threatened pull away from he distribution network citing losses on cars they couldn't sell.
What is fascinating about this whole thing is it just goes to show how important the Chinese market and the local dealership network is in the long term strategy of global car sales. Most analysts predict that 2015 will be just as strong for US sales as 2014, but what if something catastrophic happens and car sales take a dive? Could you imagine the automakers spending millions to keep US dealers alive?
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