BMW agrees to pay $820 million subsidies to China dealers

[January 05, 2015]  By Samuel Shen and Edward Taylor

SHANGHAI/FRANKFURT (Reuters) - BMW  will pay 5.1 billion yuan ($820 million) to auto dealers who pressured Europe's top luxury carmaker to share the cost of overstocked showrooms in the world's largest car market, 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 seven percent in 2014, bringing demands for compensation from dealer groups which had bought vehicles on expectations of rapid growth.

BMW declined to provide details of the deal or confirm the subsidy amount, but Chinese dealers and analysts were upbeat that 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 the 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> 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.

BMW started subsidizing its dealers in 2012 due to falling retail prices, with the payout in 2013 around 3 billion yuan, according to a senior executive at a China-based BMW dealership who declined to be identified.

BMW shares were down 1.4 percent by 1050 GMT (0550 ET) in Germany but analysts at Evercore ISI said a substantial amount of the payment had already been incurred in nine month results released in November.

"We believe it is positive that BMW has reached an agreement, and this should put an end to the on-going public statements by BMW's Chinese dealers," Evercore said in a note.

For BMW, China remains the key battleground for retaining the crown of being the largest luxury auto maker by sales.

Rivals have been forced to recalibrate their China sales amid an economic slowdown and moves by local authorities to clamp down on foreign brands with anti-trust fines and investigations.

BMW reiterated it is sticking to its full-year target of selling more than 2 million cars worldwide, saying it still sees China as a growth market which is "normalizing" from a growth spurt in the past few years.

"Many automotive dealers in China had experienced pressures and challenges from the market in the second half of 2014," BMW said in a statement emailed to Reuters.

The Munich-based car maker maintained its lead over rivals Audi and Mercedes, strong sales in China helping it to report record November deliveries.

($1 = 6.2190 Chinese yuan renminbi)

(Additional reporting by Adam Jourdan in Shanghai; Editing by Keith Weir)

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