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Foreign automakers under fire over dealers' bloated inventory

Published by Daily Times on Thu, 01 Jan 2015

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 worlds biggest auto market halved from the previous years 14 per cent.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 Chinas 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.Japans 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. Germanys 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.Honda has been helping dealers adjust inventories since the middle of the year, a company spokesman said. Hondas China sales have fallen every month since July.BMW China head Karsten Engel said in an interview last month that the luxury carmaker had listened to dealers saying stockpiles were building up, and that it had started reducing wholesale supplies.The reduction contributed to BMWs sales growth slowing to 8 percent in the third quarter from over 20 percent in the first half.BMW in a statement said it is in continuous dialogue with dealers about all aspects of business development including targets, and that it is in its interest for dealers to be profitable.
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