Chinese Auto Dealers Hurting

Chinese Car Dealers Find Days of ‘Printing Money’ Ending
“We can’t just keep on sucking it up,” said Richard Li, 40, a Toyota dealership owner who lost about 300,000 yuan last year after offering markdowns of as much as 16 percent on some models. “We have to negotiate with them and defend our rights. I will stop buying cars from them unless they step up their financial support.”

Total vehicle sales are forecast to rise 7 percent this year, little changed from 2014, because of cooling growth and as more cities impose purchase restrictions to fight pollution, according to the China Association of Automobile Manufacturers.

......Almost all retailers in the country are offering discounts and selling some models at losses to meet sales targets set by automakers, according to a survey by the China Auto Dealers Chamber of Commerce.

Sales targets are crucial because dealers must meet them to qualify for year-end bonuses, which account for more than half of their annual profit from selling cars, according to the trade group.

There also appears to be too many dealers:
Distributors are also vulnerable because they have no say over the number of new outlets that a manufacturer adds to its sales network, says businessman Carson Guo, 41, who invested 82 million yuan to set up a two-story Mini dealership in Beijing in 2012.

“There are so many Mini stores in China now and dealers have to cut prices to sell cars otherwise we won’t be able to meet sales target,” said Guo, who estimates he has lost more than 20 million yuan since opening the 10,000-square-meter outlet.

......“Vehicle demand growth has been falling and dealers have been taking the hit,” said Song Tao, a deputy secretary general of CADA. “As the organization of dealers, we need to help them out. Dealers need to make a living as well.”

As in the low cost contract manufacturing business, when growth slows, margins collapse. Many dealers are probably not running as tight a ship as needed:
“They were printing money,” he said of auto distributors in China. “Those kinds of margins were never sustainable.”

This story also puts these auto production numbers into a clearer light.

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