Foreign automakers taken to task in China over dealers' bloated inventories

Tue Dec 30, 2014 3:08am EST
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By Samuel Shen and Norihiko Shirouzu

SHANGHAI (Reuters) - Foreign automakers in China may struggle to dictate sales goals in the future after dealers complained to the government that inflexible targets set during a market boom obliged them to buy too much stock and bear the brunt of a drop in demand.

Automakers largely stuck to targets throughout 2014, selling cars to dealers on schedule. But dealers slashed retail prices and booked losses as sales growth in the world's biggest auto market halved from the previous year's 14 percent.

"Carmakers have high market expectations. But the reality is: supply exceeds demand," said Luo Lei, deputy secretary general of the China Automobile Dealers Association (CADA).

"In the past, dealers were angry, but dared not speak out. But now, they have to shout because the situation is getting so unbearable," said Luo, whose body this month filed a report with authorities on the practice of transferring stock to dealers.

The report from China's biggest dealer body could help change the balance of power at a time when automakers are starting to alter expectations in an economy expanding near its slowest rate in 24 years.

Japan's Honda Motor Co Ltd and Nissan Motor Co Ltd cut their China sales forecasts last month while executives say Toyota Motor Corp is likely to miss its 2014 goal. Germany's BMW said it expects profit margins to narrow as the market "normalizes" from the growth spurt of the past few years.

"Carmakers are making a compromise to dealers" in their worst-ever spat, said Yale Zhang, managing director of consultancy Automotive Foresight.

"Over the past years, carmakers, especially luxury brands, have been too aggressive in their quest for China market share. Now with the problem fully exposed, I expect to see an obvious slowdown in their pace of expansion next year."   Continued...

An employee removes a plastic cover from a new BMW car at a BMW dealership from the Baoxin Auto Group in Shanghai September 2, 2014. REUTERS/Carlos Barria