Up to 10 percent of dealers for FAW-Toyota Motor Sales Co. group could be backing out from the network as they are not generating enough income from selling the vehicles they are supposed to sell. According to Song Tao, a deputy secretary of the China Automobile Dealers, 95 percent of 523 dealers serving the joint venture between Toyota and FAW are bleeding financially and some of them may have to stop selling the JV’s products.
This comes as China Automobile Dealers sent FAW-Toyota a letter asking the JV to provide CHY2.2 billion ($353 million) in subsidies to help dealers meet costs brought by excess inventory, according to a copy sent to Bloomberg News. Data from the association says unsold vehicles on lots are on their highest level in December since August 2013.
Due to lower sales, FAW-Toyota lowered its sales target in September by 6 percent to 620,000 vehicles for the full year 2014. With the current situation, dealers in the FAW-Toyota network is asking the joint venture to set a 2015 sales target that is not higher than the total deliveries in 2014.
The group also asked FAW-Toyota in the letter to cut prices of imported components to help boost profit margins. The letter to FAW-Toyota dealers came after dealers for BMW AG made similar demands – as part of wider push by distributors in the country to be more autonomous from carmakers, which often determine what and how many cars retails can and should sell.
According to the China Auto Dealers Chamber of Commerce, dealers consider sales targets as crucial because these have to be met to qualify for year-end bonuses, which usually account for more over of their annual profit from sales.
With production growing faster than sales, inventories have been surging and dealers are seeing their lots filled with more vehicles as they fail to achieve targets. Retail sales of cars, multipurpose vehicles and SUVs only surged 5 percent to 1.71 million units in November, compared to 9.3 percent in October. [source: Bloomberg.com]