BMW says tensions with Chinese dealers an industry-wide issue

By Reuters

Jan 10, 2015 10:11 AM EST

Demands for compensation from Chinese car dealers hit by a market slowdown have become an industry-wide issue, BMW's board member for sales said on Friday, adding relations were not simply about "holding hands and walking into the sunset."

After years of growth that turned China into the world's biggest car market, cooling demand is exacerbating tensions between global automakers and local car dealers.

Foreign carmakers are now facing calls by the China Automobile Dealers Association (CADA) to shoulder some of the burden of lower profits. This week, CADA took the unprecedented step of saying BMW (BMWG.DE) had agreed to pay 5.1 billion yuan ($820 million) to dealers.

Asked why the demands from Chinese dealers were so vociferous and had become public, BMW board member for sales and marketing Ian Robertson said: "This is an industry issue. The market slowed down quite a lot in the last quarter."

"We expected the market to normalize. In the first quarter it was business as usual. It started to slow in Q2. We took the decision in July and August to reallocate some of the big cars -- 7 series and X5 -- away from China."

One way for dealers to shore up profits was to adapt their business to the new market conditions, and to develop new sources of revenue, Robertson told Reuters in an interview.

"The dealership business model is changing. In the past it was driven by new cars. Three years ago it was all cash and no trade in," he said.

Chinese dealers should now focus on both new and used cars, as well as parts, servicing and financial services, he added.  

Asked whether many dealerships would have to close, Robertson said: "I don't think that is the case. In China we still have growth potential."

He declined to comment in detail about talks with CADA and Chinese dealerships, but said: "Very simply, the relationship with the dealers is very important and critical. It's not about holding hands and walking into the sunset."

He compared the heightened tensions with Chinese dealership groups with the ups and downs in a long-term relationship.

"The relationship is just like a good marriage, it has some tension, but the commitment on both sides should be to the future," he said.

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