BMW's China dealers say company agrees to pay $820 million subsidy

Mon Jan 5, 2015 12:30pm EST
 
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By Samuel Shen and Edward Taylor

SHANGHAI/FRANKFURT (Reuters) - BMW (BMWG.DE: Quote) will pay 5.1 billion yuan ($820 million) to auto dealers in China who pressured the world's top luxury carmaker to share the cost of overstocked showrooms, BMW's main Chinese dealership group said on Monday.

Car sales growth in China, the world's largest auto market, was expected to halve to 7 percent in 2014, bringing demands for compensation from dealer groups which had bought vehicles on expectations of rapid growth.

BMW has been hit by a slowing Chinese economy where cut-throat competition leave its aging product range increasingly exposed. Its 7-series limousine for instance, on the market in China since 2009, competes with a new version of the Mercedes (DAIGn.DE: Quote) S-Class, launched in late 2013.

BMW declined to give details of the deal but Chinese dealers and analysts were upbeat an agreement had been struck.

"This is the biggest such subsidy we've had in China ... because last year, dealers had the highest level of stockpile," said Song Tao, deputy secretary general of the China Automobile Dealers Association (CADA), which had represented dealers in the negotiations.

"I'm glad the negotiations ended with champagne," Song said in a phone interview.

Other foreign automakers such as Toyota Motor Corp (7203.T: Quote) are also negotiating with their dealers in China, who have complained to the government that they are obliged to buy too much stock, leading to large losses in a slowing market.

  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