China dealers fight back as stock piles up

SHANGHAI -- The China Automobile Dealers Association has been 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 anymore.

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 the number and mix of vehicles that they can ship to dealers.

With no other way out, dealers complained to the association about the financial burden of high inventories.

Less than 30 percent of dealers nationwide are profitable, and nearly all dealerships that sell luxury brands are losing money.

The association took action. Among other things, it started organizing dealership lobby groups for each brand. To date, dealership groups have been formed for nearly all major global luxury brands, allowing dealers to negotiate more effectively with the automakers.

Since December, the three largest luxury brands in China -- Audi, BMW and Mercedes-Benz -- have agreed to cover dealer losses.

As China's market eases into a lower growth rate, automakers will be tempted to maintain their sales goals by dumping cars on their dealerships. To preserve a healthy balance of power between automakers and dealers, the dealership association must protect their members' rights.

For China's dealers, it's a matter of survival.