BMW agrees to pay $820 Million to its distributors in China

Article by Andrew Christian, on January 6, 2015

BMW has reached an agreement to provide CHY5.1 billion ($820 million) in subsidies to its retailers in China to help cover their financial losses as they halted placing orders from the German carmaker, according to China Automobile Dealers Association.

According to the group’s deputy secretary general Song Tao, the subsidies will be paid by the end of February. BMW and the dealers are still holding discussions over the sales targets for this, Tao said. Dealers are complaining about the unrealistic sales targets that would make them legible for year-end bonuses.

The move by BMW to subsidize its Chinese dealers may place further pressure on other carmaker to provide similar incentives to their sales network in the country. Toyota Motor Corp. has seen threats from its dealers to exit the sales network of one of its local joint ventures due to increasing losses.

Han Weiqi, an analyst with CSC International Holdings Ltd., remarked that while the BMW’s move to “give funding of such big scale” is unusual, it will smooth relationship with the dealers, which is in the carmaker’s best interests.

BMW said in an e-mailed statement to Bloomberg that slowing sales growth in China means a “new normal” is emerging. The carmaker added that the parties “reached consensus on the structure of optimized business measures and financial allocation for the dealers.”

BMW is planning to support its dealers through additional activities like financial services and used car sales. BMW said these activities offer “large potential” for the carmaker and its dealers.

The carmaker, through over 440 BMW sales outlets and 100 Mini stores, sold 415,200 vehicles in China in the first 11 months of 2014.

Topics: bmw, china

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