Car makers pay to keep Chinese dealers happy as market slows

Deteriorating relations

The decision by the BMW dealers to go public about the scale of their payout has raised eyebrows in Europe, where it has been seen as a signal of deteriorating relations.

"The fact that the dealer body puts out these numbers is shocking," Arndt Ellinghorst, an automotive analyst at Evercore ISI said. "It is normally done behind closed doors. It raises a question over whether others need to rethink their dealership strategies."

BMW and its dealers both face a big year: the firm is about to introduce a new 7-series, an important vehicle for the Chinese market.

The carmakers say it is in their own interest to ensure that dealerships are profitable and well run. The dealer's showroom is the customer's first encounter with a luxury brand.

"A financially solid dealer network is part of our strategy, as satisfied dealers create satisfied customers," Audi said.

Daimler said its negotiations were aimed at striking "a healthy balance between sales performance in terms of volume and the operational quality and customer service of our dealers."

Volkswagen, Porsche and Mercedes negotiate with their dealers through "dealership councils" set up by CADA, which increases the dealers' clout.

CADA also has ambitions beyond representing the big importers of luxury foreign brands.

Song Tao, CADA's deputy secretary, said the body is in talks about helping to set up a dealership council at Toyota's joint venture with state-owned Chinese firm FAW, where he said the dealers want subsidies of 2.2 billion yuan and are not happy with the carmaker's response. Toyota declined to comment and a spokesman for the joint venture was not available.

"Many conflicts we see today result from lack of communications," Song said. "Due to the difference in status, individual dealers are not willing to, or don't dare to, talk frankly with the carmakers... If this new platform is set up, all issues can be solved on the negotiation table."