The rise of a strong dealer association bodes well for China's auto industry
SHANGHAI -- Where there is oppression, there is rebellion, as a Chinese saying goes.
Several global luxury brands late last year dumped vehicles on their dealerships to achieve ambitious annual sales targets.
The move triggered a revolt among dealers. It also produced something much needed in China's auto industry -- an industry association that actively defends dealers' rights.
Until very recently, the China Automobile Dealers Association was a weak and loose organization. Its main job was to produce an annual list of China's top 100 dealerships and to hold a few national conferences for dealers.
But it is not feckless any more.
Over the last six months of 2014, auto sales in China slowed sharply as the nation's economy cooled. But automakers, led by the global luxury brands, continued to burden dealers with excessive vehicle inventories.
Dealership stockpiles in China jumped to 55 days in November, significantly above the normal range of 24 to 36 days. Inventories of imported vehicles, most of which were luxury brands, rose as high as 80 days in November, according to the association.
But dealers cannot resolve the dispute over inventory with automakers through legal channels. China's regulations allow automakers a free hand to decide upon the number and mix of vehicles that they can ship to dealers.
With no other way out, dealers complained vigorously to the association about the financial burden of abnormally high inventories. Less than 30 percent of dealers nationwide are profitable, and nearly all dealerships that sold luxury brands are losing money.
Startled by the fast deteriorating livelihood of the dealers, the association finally took action.
It first contacted two regulatory agencies -- China's Ministry of Industry and Information Technology and also the Ministry of Commerce -- and urged them to pressure automakers to reduce vehicle stockpiles.
While the government pondered that request, the association started organizing dealership lobby groups for each brand. To date, dealership groups have been formed for nearly all major global luxury brands, and also for Volkswagen and Toyota.
Each dealership group is led by a major dealer from that brand in addition to an official from the association. Since dealership stockpiles vary by distribution channel, the lobbying groups for each brand have allowed dealers to negotiate more effectively with the automakers to ease their financial pressure.
Since December the three largest luxury brands in China -- Audi, BMW and Mercedes-Benz -- have agreed to cover dealer losses. Dealership groups for FAW-Toyota and Porsche also gained an opportunity to obtain subsidies after they threatened to stop ordering vehicles.
As China's auto market eases into a lower growth rate, automakers will be tempted to maintain their sales goals by dumping too many cars on their dealerships. To preserve a healthy balance of power between automakers and dealers -- the dealership association must protect their members' rights.
For the dealers, it's a matter of survival.
The move triggered a revolt among dealers. It also produced something much needed in China's auto industry -- an industry association that actively defends dealers' rights.
Until very recently, the China Automobile Dealers Association was a weak and loose organization. Its main job was to produce an annual list of China's top 100 dealerships and to hold a few national conferences for dealers.
But it is not feckless any more.
Over the last six months of 2014, auto sales in China slowed sharply as the nation's economy cooled. But automakers, led by the global luxury brands, continued to burden dealers with excessive vehicle inventories.
Dealership stockpiles in China jumped to 55 days in November, significantly above the normal range of 24 to 36 days. Inventories of imported vehicles, most of which were luxury brands, rose as high as 80 days in November, according to the association.
But dealers cannot resolve the dispute over inventory with automakers through legal channels. China's regulations allow automakers a free hand to decide upon the number and mix of vehicles that they can ship to dealers.
With no other way out, dealers complained vigorously to the association about the financial burden of abnormally high inventories. Less than 30 percent of dealers nationwide are profitable, and nearly all dealerships that sold luxury brands are losing money.
Startled by the fast deteriorating livelihood of the dealers, the association finally took action.
It first contacted two regulatory agencies -- China's Ministry of Industry and Information Technology and also the Ministry of Commerce -- and urged them to pressure automakers to reduce vehicle stockpiles.
While the government pondered that request, the association started organizing dealership lobby groups for each brand. To date, dealership groups have been formed for nearly all major global luxury brands, and also for Volkswagen and Toyota.
Each dealership group is led by a major dealer from that brand in addition to an official from the association. Since dealership stockpiles vary by distribution channel, the lobbying groups for each brand have allowed dealers to negotiate more effectively with the automakers to ease their financial pressure.
Since December the three largest luxury brands in China -- Audi, BMW and Mercedes-Benz -- have agreed to cover dealer losses. Dealership groups for FAW-Toyota and Porsche also gained an opportunity to obtain subsidies after they threatened to stop ordering vehicles.
As China's auto market eases into a lower growth rate, automakers will be tempted to maintain their sales goals by dumping too many cars on their dealerships. To preserve a healthy balance of power between automakers and dealers -- the dealership association must protect their members' rights.
For the dealers, it's a matter of survival.
