Audi released an additional subsidy of 1.2 billion CNY in cash in July to its Chinese dealerships to promote sales and relieve the high inventory pressure, making the overall subsidy reached 3.25 billion CNY with its last subsidy of 2.05 billion CNY in December last year.
Given the sudden slump of growth in the second half last year, automakers have begun to offer subsidy to dealerships to relieve their high inventory pressure. Until recently, the subsidy of only two automakers Audi and BMW has approached ten billion CNY.
Since November of last year, automakers including BMW, Audi, FAW Toyota, Mercedes-Benz, FAW VW, Shanghai GE, Volvo, JLR and Renault have released large sums of subsidy to its own dealerships. For example, BMW has reported a 5.1 billion CNY November last year and an additional subsidy of 13,000-17,000 CNY per vehicle in July this year. FAW Toyota gave 1.24 billion CNY cash in February this year. Mercedes-Benz offered 1 billion CNY in December last year to its Chinese dealerships.
In June, the comprehensive inventory index of dealerships was 1.68, exceeding much the alarming line. Meanwhile, the sales of Chinese vehicles declined 2.3% from a year earlier, according to the statistics of China Automobile Dealers Association and China Association of Automobile Manufactures.
The lingering high inventory and the overall industry downturn have pushed many dealerships on the edge of bankruptcy. According to the expose of China Central Television, several dealerships, including FCA dealerships, have run out of fund.
Shen Rong, the deputy secretary general of China Automobile Dealers Association told the reporter that dealers can only earn less than 2% profits of the selling price each vehicle, which can hardly pay out the interest of loans from banks. Thus, currently dealers can make no money in China. If automakers didn’t help dealers with subsidy, dealers probably will “die”.
The deputy secretary general added that subsidy is the cure for the moment, and the fundamental method is to reduce the commanding control of manufactured over dealers. On the other hand, dealers should change the profit structure consisting 80% of the maintenance profit.
