BMW.jpg (Photo : Reuters)
Alreadly grappling with China's slowing economy, BMW AG is facing another drain in its revenues as it concedes to cover the billions of losses of Chinese retailers after they halted vehicle orders from the German automaker.
According to the agreement, BMW will pay its retailers in China 5.1 billion yuan ($850 million) in subsidy to be paid by the end of February.
Song Tao, a deputy secretary-general of the China Automobile Dealers Association, said that the subsidy is the largest by an automaker to its retailers in the country. Song also represented the Chinese retailers in the talks with BMW.
In recent months, auto dealers are complaining about unrealistic sales targets, and they are currently negotiating the sales targets for 2015 with BMW. Reaching annual sales targets is crucial as it dictates the amount of bonus received by dealers from the manufacturers.
BMW's move might become the trend among foreign automakers, whose dealers in China are also experiencing mounting losses. Toyota, for instance, has been aware of Chinese retailers threatening to quit the sales network due to dwindling sales.
Han Weiqi, an analyst with CSC International Holdings, said that BMW's enormous subsidy is unusual. "But in the long term, a smooth relationship with dealers is in [the] carmakers' best interests and they have to meet dealers halfway," Han added.
BMW spokesman Nikolai Glies denied via phone that the money was intended as payment for losses, but instead part of bonuses given to dealers every year.
Adapting to China's "new normal" economy, BMW and its dealers in China have agreed on "the structure of optimized business measures and financial allocation for the dealers." Aside from selling cars, BMW plans to help dealers in expanding activities to financing and used-car sales.
BMW has over 440 sales outlets and 100 mini stores in China. From Jan.-Nov. 2014, the German automaker delivered 415,200 units in the country.
