China Dealerships Balk at Forced Auto Sales Quota

Dec 31, 2014 03:00 PM EST | Jordan Ecarma

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A trade association representing China auto dealerships has said that carmakers have "excessive power" when it comes to sales targets since dealers are forced to pay for cars they may not be able to sell.

"Carmakers have high market expectations. But the reality is supply exceeds demand," said Luo Lei, deputy secretary general of the China Automobile Dealers Association, according to Reuters.

"In the past, dealers were angry, but dared not speak out. But now, they have to shout because the situation is getting so unbearable," said Luo.

Targets that were outlined during a rise in car sales have locked dealerships into buying too many cars, according to CADA. While automakers continued to meet their sales targets in 2014, dealers were hit with losses as they reduced listing prices in an attempt to move cars from their lots.

The biggest auto market worldwide, China only saw 7 percent growth in car sales this year, half of 2013's 14 percent.

Carmakers including Honda and BMW say they have been "adjusting" and "reducing" inventories in China dealerships in the last six months.

CADA reports show that just 30 percent of dealers made a profit in 2014, which compares with 70 percent in 2010.

Auto companies have been announcing large Chinese investments despite the slow in car sales. South Korea's Hyundai recently revealed plans to build two new factories in the country, while General Motors said in October that it will invest $14 billion for five new Cadillac facilities.

In early November, fellow luxury brand Lincoln opened three new dealerships for its China launch after spending three years developing a special dealer model to make buyers feel at home. Ford plans to have 25 Lincoln dealerships in the country altogether by the end of 2015.

While auto sales may have declined, the number of licensed Chinese drivers is higher than ever and passed 300 million this month.

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