Toyota dealer group in China warns up to 10% may quit as losses mount

Dealers in the FAW-Toyota network want 2015 sales targets in China no higher than 2014 sales, according to the group, which also asked the Toyota venture to reduce prices of imported components to help boost profit margins. Photo credit: BLOOMBERG

BEIJING (Bloomberg) -- As many as 10 percent of dealers for one of Toyota Motor Corp.'s China ventures are poised to drop out of the network because they can't make money on the cars they're told to sell, a dealer's group said.

Among the 523 distributors in the FAW-Toyota Motor Sales Co. group, 95 percent are losing money, said Song Tao, a deputy secretary of the China Automobile Dealers Association.

Some dealers may have to stop selling FAW-Toyotas or shut altogether because of the losses, he said. The looming defections come as the state-backed dealer's group sent a letter to FAW-Toyota on Friday seeking about 2.2 billion yuan ($353 million) in subsidies to help meet costs caused by excess inventory, according to a copy sent to Bloomberg News.

Unsold vehicles of all makes on lots rose to the highest level last month since August 2013, according to data from the dealers association.

The complaints by FAW-Toyota dealers follow similar demands by distributors this month for BMW AG and form part of a broader push by China's auto retailers to gain more autonomy from manufacturers, which currently dictate the number and type of cars they sell.

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, the China Auto Dealers Chamber of Commerce said this month.

Ma Chunping, a FAW-Toyota spokeswoman, said she couldn't immediately comment. A call to Toyota's public affairs office in Tokyo went unanswered and representatives for the company didn't immediately respond to an e-mailed request for comment.

Sales targets

Inventories have mounted as manufacturers increased output faster than sales rose.

Retail deliveries of cars, multipurpose and sport-utility vehicles climbed 5 percent to 1.71 million units in November, according to the Passenger Car Association.

That compares with 9.3 percent growth in October. FAW-Toyota lowered its sales target in September by 6 percent to 620,000 vehicles for this year.

Dealers in the FAW-Toyota network want 2015 sales targets no higher than 2014 sales, according to the group's letter, which also asked the Toyota venture to reduce prices of imported components to help boost profit margins.

The joint venture is expected to officially respond to the request on Jan. 5, according to the association. Richard Li has has been selling FAW-Toyota models for more than a decade. He estimates his losses this year at 3 million yuan.

"Sales were so terrible this year that we had to offer up to 13,000 yuan of discounts to sell a 80,000 yuan Vios compact," said Li. "If the carmaker isn't going to help us out here, we would have to stop buying cars from them in January."

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